Foreign Investors: Don’t Forget about 1031 Tax-Deferred Exchanges!


Due to the state of the currently depressed (but improving) real estate market in the United States many foreign investors from Canada, China, Germany, Great Britain, Mexico and elsewhere in the world are purchasing U.S. property for investment purposes. Sometimes these investors are buying second homes, but more often than not they are purchasing investment properties that generate income. As the U.S. real estate market continues to improve, prices will stabilize and begin to rise. This means that many of these foreign investors will look into selling their investment properties at considerable gains. 

Since their home countries are unlikely to have a law similar to Section 1031 which allows investors to legally defer capital gains tax, they might assume they must pay taxes on their gain. In addition, many foreign investors know about 1031 exchanges but assume that they are not eligible for the benefits of them. However, that assumption is wrong! 

Section 1031 is available to all U.S. taxpayers. This includes U.S. citizens, non-U.S. citizens and entities such as corporations, partnerships, LLCs, trusts, etc.; in other words, any person or any entity that files a U.S. tax return. Since the foreign investor has a U.S. tax ID number and reports the income from their investment property, they are a U.S. taxpayer.

Although achieving a “fully tax-deferred exchange” may be impacted by the requirements of the Foreign Investment in Real Property Tax Act (FIRPTA), the benefits of a 1031 exchange are nevertheless available to foreign investors. For assistance with coordinating a 1031 exchange within the requirements of FIRPTA, contact your local IPX1031 representative.

We, at IPX1031, pride ourselves on not only being the industry leader in service and security, but we also strive to help our clients and their advisors keep current on tax issues pertaining to 1031 exchanges. We aim to be your complete information resource. For more information about us or our complimentary monthly webinars about 1031 exchanges, visit our website at www.ipx1031.com.

Download pdf