Internal Revenue Code (IRC) Section 1031 applies to the citizen or resident of the United States (US) or non-resident alien subject to US federal income taxes.When selling real and personal property held for productive use in a trade, business or for investment, a 1031 exchange allows individuals, partnerships, corporations, limited liability companies and trusts to defer the federal capital gain and recaptured depreciation taxes when selling property held for the proper intent, regardless of where the property is located. Property used predominantly in the US is eligible as replacement property held predominantly in the US, while property located outside the US is eligible for 1031 consideration with property held internationally.
The Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, is a federal law that applies to any disposition of real property by a foreign person. In general, FIRPTA requires that ten percent of the amount realized from the disposition of the property be withheld and remitted to the Internal Revenue Service after the closing on the property. Understanding how FIRTPA operates, when it applies, and what exceptions may be available is important for anyone involved in real property transactions.
Recently I was asked to advise a foreign corporation on how to structure a 1031 exchange or tax deferral strategy. I listened to the proposed transaction, asked a number of questions and provided guidance and information to follow prior to the closing.