# Section 1031 exchange?



## pattiwhaley (Jul 7, 2017)

dear Expat experts, 

I'm a US citizen living in the UK and have owned two UK leasehold properties for rent for about 13 years. Having now decided that the whole leasehold system is the work of the devil (but that's for another day....) I want to sell the two properties and buy a freehold property to rent. In the UK there is about £30K gain on each property. My understanding is that as these properties were always intended as investment properties (i.e. not second homes or holiday homes or anywhere for me to actually live) I am possibly able to do a 1031 exchange and avoid US capital gains tax on the properties. Does anyone have any experience with this? Specifically: 

- My usual tax advisor says "1031 Exchange - Your understanding is correct but was the property listed as a business or investment property initially, if this was listed residential rental property then you cannot claim 1031." I think that's just wrong. I.e. there isn't a real difference between "residential rental property" and "investment property" that I can find in any IRS publications. 

- apparently I need a "qualified 1031 intermediary" to hold the funds from one property while I seek to close on the replacement property. But it doesn't seem easy to locate a qualfied 1031 intermediary in the UK. Has anyone used one or know how I can find one? 

While I can use any UK CG tax to offset US CG tax, the US tax will be more because of the recapture of depreciation over the years, so it would be very helpful to defer the US tax if that's an affordable option. 

Thanking you in advance for any guidance! 
Patti


----------



## iota2014 (Jul 30, 2015)

pattiwhaley said:


> dear Expat experts,
> 
> I'm a US citizen living in the UK and have owned two UK leasehold properties for rent for about 13 years. Having now decided that the whole leasehold system is the work of the devil (but that's for another day....) I want to sell the two properties and buy a freehold property to rent.


Yep, I totally agree. Leasehold should have been abolished long ago.



> - apparently I need a "qualified 1031 intermediary" to hold the funds from one property while I seek to close on the replacement property. But it doesn't seem easy to locate a qualfied 1031 intermediary in the UK. Has anyone used one or know how I can find one?


<snip>


----------



## Bevdeforges (Nov 16, 2007)

Can't help you with any personal experience, but you may want to take a look at the IRS information sheet and the Wikipedia article on 1031 exchanges:
https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031
https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031
There are a number of references in both articles to further publications and documents that may help answer some of your further questions. From a little quick research I've done, it seems that foreign-foreign 1031 exchanges like you are planning can be tricky and they recommend finding someone with experience in this type of transaction. You could start by contacting one of the large international public accounting firms to see if they can suggest someone in the UK.
Cheers,
Bev


----------



## iota2014 (Jul 30, 2015)

Sorry if I inadvertently broke a rule of this forum by mentioning a different forum. I'm not advertising or promoting anybody's services. Just thinking that people in the UK who've had experience with this somewhat arcane area, and might be in a position to recommend a reliable qualified intermediary, might be reading/posting in that forum if they're not reading/posting here.


----------



## pattiwhaley (Jul 7, 2017)

Thanks Bev and Iota. Just to check, are we not allowed to pass around recommendations in the forum? I realise we're not allowed to advertise and perhaps it is not easy to tell the difference. 

Patti


----------



## Bevdeforges (Nov 16, 2007)

pattiwhaley said:


> Thanks Bev and Iota. Just to check, are we not allowed to pass around recommendations in the forum? I realise we're not allowed to advertise and perhaps it is not easy to tell the difference.
> 
> Patti


Recommendations are OK, as long as they are in response to a legitimate question asked by someone on the forum (and not your own business or services). But there is also a rule against sending folks to a "competing" (or similar) forum. 
Cheers,
Bev


----------



## Nononymous (Jul 12, 2011)

Bevdeforges said:


> Recommendations are OK, as long as they are in response to a legitimate question asked by someone on the forum (and not your own business or services). But there is also a rule against sending folks to a "competing" (or similar) forum.
> Cheers,
> Bev


A rule I find particularly unhelpful when other forums may provide more detailed answers and information. 

My workaround is to provide enough clues to find the other forum. Google "isaac brock and society" for US tax advice. Google "toy and town and germany" for more detailed answers to your residence permit question. And so on.


----------

