In this 1031 FAQ video, Jeff Peterson discusses some state law considerations when conducting a 1031 exchange. Watch more 1031 educational videos here.
Not all property qualifies for 1031 exchange treatment. In particular, congress has said that foreign property is not like-kind to US property.
So if I have a business property in Canada or Mexico and I sell it I may be subject to taxes because I'm a US taxpayer making a gain somewhere in the world. The way that section 61 of the Internal Revenue Code is written you are taxed on income from wherever it's derived.
Under 1031 you can defer that gain but in order to acquire a qualifying property you’d have to buy another foreign property. So a foreign to foreign exchange works but foreign to US does not work.
Now let's talk about some state law differences. In some states a mobile home may be taxed and treated as personal property, much like we think of an RV or a car. In other states a mobile home maybe consider real estate, particularly if it's affixed or strapped down to the Earth. Water rights oftentimes are considered personal property rights in some states and in other states are real property. Crops or other things that grow in the earth may be considered personal property in some states and real estate in others. So when you’re doing a 1031 exchange you want to look closely at the type of property and whether it qualifies, and what it’s character is – real estate or personal property.
- 1031 Hotline: If you have questions about 1031 exchange state law considerations and differences, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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