Selling a US property in exchange for another US property . . .1031 exchange?

[investornewbie]

Hi



I am considereing selling one US property and want to exchange it for another US property. I wondered if I could do a 1031 exchange under the US tax code. This would defer the capital gains on the sale. I currently file my rental income taxes in the US. Arguments for 1031, is that both properties are eligible for like and kind exchange in the US. However, 1031 exchanges are not recognized in Canada and all capital gains are paid. The caveat to this, as I said is that I file all my taxes in the USA, since no taxes are paid on this transaction it would not effectively be owed on my Canadian tax return. Anybody have experience doing this?

 

[Thomas Beyer]

You need a US C Corporation or a US trust for this, not a personally owned asset !



So, you could sell the current asset to a C Corp (or trust), file any gains (or losses) personally, both in US and in Canada, then do the exchange within that corporate or trust structure !



This is not legal, nor financial nor tax advice. Get appropriate advisors, please !

 

[PeterCuttini]

Hello there



I agree with Thomas, in that this should not be done if you owe the property personally. Yes you can defer the US capital gains with a 1031 like exchange, but CRA does not recognize the 1031 exchange and will require you to report your capital gain in Canada and pay the tax on the gain. What makes this really bad, is that there will be a mismatch of foreign tax credits and you will end up paying double tax.



It the property is owned by a corporation, yes you can do the 1031 exchange.