Foreign Owned Property Exchange
- Section 897(e) states that section 1031 does not apply to exchanges if they involve any disposition of a United States real property interest by nonresident alien individuals and foreign corporations where the real property interest is not traded for another United States real property interest that is subject to United States taxation on its subsequent disposition. Under Code section 1445, each foreign exchange taking place since January 1, 1985, is subject to an additional withholding of 10% of the sales price realized by the transferor.
- There is no extra withholding required if the transferor is not a foreign person.
- Additionally, the withholding rules differ between simultaneous exchanges and deferred Exchanges.
A foreign seller is a non-U.S. citizen and can be either: a non-resident alien individual, a foreign corporation, foreign partnership, foreign trust, or foreign estate. This definition does not include a resident alien individual.