A 1031 exchange defers the federal and state capital gain when a taxpayer sells real property held for rental outside the US and replaces with like-kind real property of greater value internationally. Navigating the social norms with attorneys, banks and closing entities can be a huge challenge given those entities know very little if anything of a 1031 exchange. When the words, Internal Revenue Service are mentioned, many entities may elect to not participate or say no to the accommodator’s requests. A recent international exchange for real property held in New Zealand was successfully exchanged for real property in Canada. The challenge from the beginning was to have the closing entity wire funds to the local New Zealand bank and then to wire to Canada for the replacement property, while including the facilitator in the process. One of the closing entity’s concerns was that the deferred exchange had the cloak of a drug deal. In addition, there has been much concern regarding the prices of real estate in countries like New Zealand, Australia, and Canada, and the authorities in New Zealand have warned about heightened scrutiny for all large transactions. In the end the exchange funds were successfully wired directly to the bank in Canada to wait for the time to apply towards the closing.
Recently Canada implemented a new regulation taxing non Canadian citizens a fifteen percent tax on metro Vancouver real estate purchases. At this point in the exchange, was it still worth the deferred taxes? Fortunately, the spouse of the New Zealander is Canadian and the tax requirement was not applicable given the husband/wife live in the community property state of Texas.
Another consideration was that the purchase in Canada was for an unfinished condominium. The closing was delayed due to construction delays multiple times, eventually being closed only a month before the 180 day closing date limit.
There were many challenges to this exchange. The Exchangor had a can-do attitude and the Escrow Holder was willing to be flexible, so with a lot of effort and follow thru we achieved the final outcome of a successful 1031 exchange.
Quote from the Exchangor:
“Andy was fantastic from the start. There were a number of obstacles that we had to overcome, and with his experience, he was always there to suggest legal alternatives that helped us work through banks and lawyers that were sometimes afraid to participate due to their unwillingness to work with foreign tax issues. I would not hesitate to work with Andy again.”
D.W.,
Dallas TX
