Any foreign holder of real estate in New York likely knows just how tricky tax laws surrounding purchases and sales can be. Many owners want to avoid a sizable payment to the U.S. government come April 15th and choose to participate in a 1031 exchange instead.
In New York, a 1031 exchange allows investors to sell a property and reinvest the proceeds into a similar, or “like-kind,” property while deferring all capital gains. Foreign owners of U.S. real estate can take advantage of this type of investment strategy as well, especially when it comes to commercial real estate.
Time-sensitive requirements of a 1031
In order to take advantage of a 1031 exchange, an investor must identify the like-kind property that will function as the replacement within 45 days of the sale of the original property. In addition, the investor must receive the replacement property within 180 days. If these time limits are not met, you may not be able to defer the capital gains received from the sale.
Benefits of a 1031 exchange
For most foreign investors, the purpose of holding real estate in the U.S. is to grow a portfolio. Unfortunately, selling real estate with equity requires that you pay taxes on that money earned. With a 1031 exchange, the equity goes right back into another investment, allowing the investor to net all of the equity for use in the new property.
The laws surrounding 1031 exchanges are complex, but you can use them in your favor if you want to avoid paying on the capital gains accrued over years of real estate investments in New York.