1031 Exchanges

As CPAs who deal exclusively in the international arena, Roberge Poskus International recommends that a nonresident of the United States (a foreign investor), use caution when considering 1031 exchanges. If the investor is taxed in his/her home country on the sale of US real property, the deferment of gain in the US could result in a double tax situation for that investor. For example, if John Canada sells US real property and defers a gain of $10,000 for US tax purposes – that gain is probably not deferred in Canada. So when John files his Canada return for 20XX, he will pay tax on the gain as calculated under Canadian tax law. If John sells the US property in a taxable transaction, he can use US tax credits to offset Canadian taxes. But if John defers the US taxes by using a 1031 exchange, then it is very likely that John will pay his Canadian taxes on this property and then years later (when the deferred gain is recognized), pay the US tax on the same gain. Unfortunately that often results in double taxation as the timing difference could preclude the use of tax credits.

According to Roberge Poskus International, the recommendation is that foreign investors consider their home country tax situation and whether gains from the United States are reportable in their home country for tax purposes PRIOR to going forward with a 1031 Exchange. Please note that FIRPTA still applies in 1031 Exchanges in most cases.

Information provided by:
Susan Inez Poskus
Roberge Poskus International
US International Tax Services

St. Petersburg Office: (727)822-9393
Fax: (727)823-6781

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