IS THE TAXPAYER RESTRICTED AS TO WHERE THEY CAN PURCHASE THEIR REPLACEMENT PROPERTY?

A CPA from Ohio just asked the above question and it is a good one to present in this blog.  A taxpayer can purchase the replacement property in any state in the Union.  Does Puerto Rico  qualify as a State?  No it doesn't--but there a few exceptions--so please ask your tax advisor if you think you are going to be dealing with Guam, Puerto Rico or the US Virgin Islands.  In the case of the CPA mentioned above, he has a client who is selling an apartment building in Ohio and wants to obtain a replacement property in Arkansas.  That is not a problem and that is allowed.  But the taxpayer cannot obtain a replacement property for Section 1031 purposes in Mexico, because obviously Mexico does not qualify as a State--New Mexico however will qualify.  One other little minor point, a U.S. taxpayer can exchange a foreign property for another foreign property, but not a foreign property for a U..S. property.  Check with your tax and/or legal advisor should you have any questions on these issues.

Comments

[Kenneth Lujan]

Guam's tax code is a mirror image of California's tax code. However, there might be special exemptions as to how we file our taxes on Guam. I have seen several land transactions (1031 Exchanges) where properties within the U.S. CONUS as well as Hawaii and Alaska were involved and accepted by the IRS.