1031 Exchange of Foreign Property or Assets

London Property Exchanged for London Property
I just completed a 1031 exchange that involved the sale of a London Flat as the taxpayer's relinquished property and the purchase of another London Flat as the replacement property. The two properties are being treated and used as rental properties.

1031 Exchange of Foreign Property
You are probably wondering how this can be. You are not alone. There are many who do not realize that you can 1031 exchange foreign property for other foreign property.

Properties Must Be Qualified Use Properties
The key is that both properties must be "Qualified Use Properties" (i.e. held for investment, rental or use in a business) in order to qualify under Section 1031. The other issue is that there must be a United State income tax consequence in order for the 1031 Exchange to provide any benefit.

So, as long as the taxpayer is a U.S. taxpayer that will have a U.S. tax consequence upon the sale of the foreign property and the property is held as investment property, it can be exchanged for other foreign property.

Properties Must All Be Foreign Properties
You can not sell foreign property and exchange into domestic property (i.e. U.S. property) or sell domestic property and exchange into foreign property. The properties involved in a 1031 Exchange must either be all domestic properties (all U.S. properties) or all foreign properties (all non-domestic properties).