FIRPTA

Foreign Property, Virgin Islands and 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on Foreign Property, Virgin Islands and 1031 Exchange

As is often the case during the cold winter months in North America, questions regarding whether a 1031 exchange is applicable to properties in the Caribbean surface for clarification. As a former Rio Mar resident in Rio Grande, Puerto Rico, the question and picture stirs memories of sand, aqua blue waters, a young family, good friends, deserted beaches, lechon asado, Metropol in barrio Hato Rey, Medalla and warm sea breezes.

Foreign Property

In 1989, Section 1031 was amended with Subsection (h)(1) stating that real property located in the United States is not considered like-kind with real property located outside the United States. Foreign real and personal property used predominantly in a foreign country is eligible for 1031 exchange tax deferral treatment when exchanged for real and personal property located in a foreign country.

Virgin Islands

Section 7701 of the Internal Revenue Code (IRC) defines the borders of the United States as all fifty states and the District of Columbia. The Internal Revenue Service defined the borders of the U.S. to include the U.S. Virgin Islands for 1031 eligibility given the Exchangor is:

(1) A citizen or resident of the United States and

(2) Has income derived from sources within the U.S. Virgin Islands, is effectively connected to the performance of a trade or business in the U.S. Virgin Island or files a joint return with an individual who derives an income or is connected to a trade or business within the U.S. Virgin Islands.

Both requirements must be satisfied to exchange real property in the fifty states and real property located in the U.S. Virgin Islands.

Puerto Rico and Guam

Puerto Rico, though a Commonweath of the U.S. is not eligible for 1031 consideration. Guam is eligible for 1031 tax deferrals. It has been suggested that Sections 932 and 935 of the Internal Revenue Code provide special rules that treat Guam and the U.S. Virgin Islands as part of the U.S. while Puerto Rico is not.

FIRPTA

US citizens and foreigners owning real property outside the US defer federal capital gains taxes with a 1031 exchange when replacing with real property located outside the US. Foreigners selling US located real property must comply with the Foreign Investment in Real Property Act of 1980 (FIRPTA).

A nonresident alien individual, foreign corporation (unless a valid election under Section 897(i) has been made), foreign trust, but not a resident alien individual is considered a foreign person according to Regulation Section 1.4445-2(b)(2)(i)(C).

We Can Help 

Atlas 1031 Exchange has been accommodating tax-deferred exchanges of all kinds for more than 17 years. We are fluent in the rules and regulations of IRC Section 1031 and able to help you navigate your exchange.

Contact us today to discuss any questions you may have. Call our office at 1-800-227-1031, email us at info@atlas1031.com, or submit your question through the online form at the top of this page.

Foreign Property, Virgin Islands and 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on Foreign Property, Virgin Islands and 1031 Exchange

Foreign Property Virgin Islands and 1031 ExchangeAs is often the case during the cold winter months in North America, questions regarding whether a 1031 exchange is applicable to properties in the Caribbean surface for clarification. As a former Rio Mar resident in Rio Grande, Puerto Rico, the question and picture stirs memories of sand, aqua blue waters, a young family, good friends, deserted beaches, lechon asado, Metropol in barrio Hato Rey, Medalla and warm sea breezes.

Foreign Property

In 1989, Section 1031 was amended with Subsection (h)(1) stating that real property located in the United States is not considered like-kind with real property located outside the United States. Foreign real and personal property used predominantly in a foreign country is eligible for 1031 exchange tax deferral treatment when exchanged for real and personal property located in a foreign country.

Virgin Islands

Section 7701 of the Internal Revenue Code (IRC) defines the borders of the United States as all fifty states and the District of Columbia. The Internal Revenue Service defined the borders of the U.S. to include the U.S. Virgin Islands for 1031 eligibility given the Exchangor is:

(1) A citizen or resident of the United States and

(2) Has income derived from sources within the U.S. Virgin Islands, is effectively connected to the performance of a trade or business in the U.S. Virgin Island or files a joint return with an individual who derives an income or is connected to a trade or business within the U.S. Virgin Islands.

Both requirements must be satisfied to exchange real property in the fifty states and real property located in the U.S. Virgin Islands.

Puerto Rico and Guam

Puerto Rico, though a Commonweath of the U.S. is not eligible for 1031 consideration. Guam is eligible for 1031 tax deferrals. It has been suggested that Sections 932 and 935 of the Internal Revenue Code provide special rules that treat Guam and the U.S. Virgin Islands as part of the U.S. while Puerto Rico is not.

FIRPTA

US citizens and foreigners owning real property outside the US defer federal capital gains taxes with a 1031 exchange when replacing with real property located outside the US. Foreigners selling US located real property must comply with the Foreign Investment in Real Property Act of 1980 (FIRPTA).

A nonresident alien individual, foreign corporation (unless a valid election under Section 897(i) has been made), foreign trust, but not a resident alien individual is considered a foreign person according to Regulation Section 1.4445-2(b)(2)(i)(C).

For more information on FIRPTA or a foreign 1031 exchange call us at 850-496-0090.

Foreign Property, Virgin Islands and 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on Foreign Property, Virgin Islands and 1031 Exchange

As is often the case during the cold winter months in North America, questions regarding whether a 1031 exchange is applicable to properties in the Caribbean surface for clarification. As a former Rio Mar resident in Rio Grande, Puerto Rico, the question and picture stirs memories of sand, aqua blue waters, a young family, good friends, deserted beaches, lechon asado, Metropol in barrio Hato Rey, Medalla and warm sea breezes.

Foreign Property

In 1989, Section 1031 was amended with Subsection (h)(1) stating that real property located in the United States is not considered like-kind with real property located outside the United States. Foreign real and personal property used predominantly in a foreign country is eligible for 1031 exchange tax deferral treatment when exchanged for real and personal property located in a foreign country.

Virgin Islands

Section 7701 of the Internal Revenue Code (IRC) defines the borders of the United States as all fifty states and the District of Columbia. The Internal Revenue Service defined the borders of the U.S. to include the U.S. Virgin Islands for 1031 eligibility given the Exchangor is:

(1) A citizen or resident of the United States and

(2) Has income derived from sources within the U.S. Virgin Islands, is effectively connected to the performance of a trade or business in the U.S. Virgin Island or files a joint return with an individual who derives an income or is connected to a trade or business within the U.S. Virgin Islands.

Both requirements must be satisfied to exchange real property in the fifty states and real property located in the U.S. Virgin Islands.

Puerto Rico and Guam

Puerto Rico, though a Commonweath of the U.S. is not eligible for 1031 consideration. Guam is eligible for 1031 tax deferrals. It has been suggested that Sections 932 and 935 of the Internal Revenue Code provide special rules that treat Guam and the U.S. Virgin Islands as part of the U.S. while Puerto Rico is not.

FIRPTA

US citizens and foreigners owning real property outside the US defer federal capital gains taxes with a 1031 exchange when replacing with real property located outside the US. Foreigners selling US located real property must comply with the Foreign Investment in Real Property Act of 1980 (FIRPTA).

A nonresident alien individual, foreign corporation (unless a valid election under Section 897(i) has been made), foreign trust, but not a resident alien individual is considered a foreign person according to Regulation Section 1.4445-2(b)(2)(i)(C).

For more information on FIRPTA or a foreign 1031 exchange call us at 800-227-1031.

FIRPTA Forward 1031 Exchange

Posted on | by Tom Gustafson | Leave a Comment on FIRPTA Forward 1031 Exchange

A title company I have known and facilitated 1031 exchanges for over the years in the Florida Panhandle called to introduce one of their clients. Karen’s 1031 forward exchange was a bit unique in that she is a resident of New Zealand requiring additional Internal Revenue Service filings. The forward 1031 exchange accommodated a vacation rental property in the Florida Panhandle and acquired an investment property in Hawaii within the 180 calendar day requirement.

Foreign Investment in Real Property Act of 1980

Her CPA contacted me to assist in completing Form 8288. Every nonresident alien selling real estate must comply with the Foreign Investment in Real Property Tax Act (FIRPTA) requiring 10% of the selling price withheld and submitted to the IRS. We completed the form, submitted to the IRS in Philadelphia requesting a withholding certificate and was not required to submit the 10% which in Karen’s transaction would have represented a sizable figure. Karen chose to work with two banking service providers splitting the funds between two escrow accounts, one requiring a personal identification number and a qualified escrow account requiring dual signatures to authorize the disbursement of exchange funds. When she purchased her replacement property in Hawaii, funds were wired a couple of days in advance of the closing and the 1031 exchange was completed.

Testimonial

“You did make it easy and clear … you were the only one in the process that didn’t create a drama, ha!”

Karen Sandler, Auckland, New Zealand

 

FIRPTA and 1031 Exchange Analysis

Posted on | by Andy Gustafson | Leave a Comment on FIRPTA and 1031 Exchange Analysis

When a taxpayer realizes a gain on the sale of property, the taxpayer typically owes capital gains taxes on the amount realized. One method often utilized by taxpayers to avoid the payment of capital gains taxes is to enter into a Section 1031 Exchange instead of a traditional sale. When a transaction qualified for Section 1031 treatment the capital gains taxes that would otherwise be due are deferred. When a non-resident alien, or foreign, investor is involved the rules become a bit more complicated.

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FIRPTA and 1031

Posted on | by Andy Gustafson | Leave a Comment on FIRPTA and 1031

FIRPTA and 1031 ExchangeFIRPTA is the acronym for Foreign Investment in Real Property Tax Act of 1980 and applies to parties acquiring and disposing of real estate located within the United States (US) and owned by a foreign person. A foreign person is defined as a “nonresident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate, but not a resident alien individual” per Regulation § 1.4445-2(b)(2)(i)(C).  The intent of FIRPTA is a 10 percent withholding of the sales price without regard to the cash paid by the buyer or transferee to the seller who is the nonresident alien individual. The withholding represents an advance payment towards the federal capital gains tax obligation collected at closing to be forwarded to the Internal Revenue Service rather than later given the potential difficulty of finding nonresidents should they relocate abroad.

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