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myfatcat Asked About 'Frequently Asked Questions on QueryCAT: Does puerto rico real estate qualify for like-kind property :: Frequently Asked Questions'

Does Puerto Rico real estate qualify for like-kind exchanges?

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Tristan Celayeta
Tristan Celayeta Answered:

Hope this response is redundant and you got your answer long ago.

"Territories of the United States, such as the U.S. Virgin Islands, Guam and Puerto Rico enjoy a quasi status in regard to 1031 exchanges. Normally, U.S. territories are defined as not being in the United States under Section 7701. Therefore, any 1031 exchange between real property located within the defined United States and real property located within one of the U.S. territories is not a valid "like-kind" exchange. However, the IRS has stated that the definition of the borders of the United States may be enlarged in very specific circumstances. In Private Letter Rulings 9038030 and 200040017, the IRS stated that the definition of the borders of the United States can be expanded to include the U.S. Virgin Islands so long as the taxpayer is: (1) A citizen or resident of the United States and (2) Has income derived from sources within the U.S. Virgin Islands, is effectively connected to the performance of a trade or business in the U.S. Virgin Island or files a joint tax return with an individual who derives sources of income or is connected to a trade or business within the U.S. Virgin Islands. Both requirements must be fulfilled in order for an exchange between real property located within the 50 states and real property located within the U.S. Virgin Islands to be valid as a 1031 exchange. There exists no Private Letter Rulings regarding the other U.S. territories, but there is no territorial difference between the U.S. Virgin Islands, Guam and Puerto Rico. Therefore, it is intuitive that meeting the same two requirements would make a 1031 exchange between real property in the 50 states and real property in either Guam or Puerto Rico valid."

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