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1031 Exchange in the US Virgin Islands

USVI Tax-Deferred Property Exchange Explained

Home with Waterview St Thomas USVI

1031 Exchange, Like-Kind Exchange, and Starker Exchange — The US Virgin Islands are eligible to participate in 1031 tax-deferred property exchanges. If you own an investment or rental property, a 1031 exchange could enable you to defer tax liability from the property's sale if the funds are used to reinvest in a second property of a "like-kind." You could use the 1031 exchange to acquire investment opportunities in the US Virgin Islands.

Benefits of a 1031 Exchange

When you sell an investment property, you will be required to pay a capital gains tax on your profits at either a short-term or long-term capital gains rate. If you instead, reinvest profits from the sale in a like-kind property of the same or greater value, Internal Revenue Code Section 1031 provides for you to defer the tax liability. This opens up possibilities for investors looking to diversify or move markets entirely -- including stateside investors seeking opportunities in the US Virgin Islands. Other advantages to a tax-deferred exchange include:
  • The potential to increase investment income by moving to more profitable real estate markets.
  • Property consolidation for those seeking to consolidate multiple investment properties into a single property.
  • Market diversification for those seeking to convert one investment property into multiple properties across various locations.
  • Exchanging one type of investment property for another kind of investment property (i.e., land in exchange for a single-family home)
Note that the investor must pay taxes upon selling the second property. However, if another 1031 exchange is executed, the liability may potentially be deferred again.

1031 Basic Qualifications

Internal Revenue Code Section 1031(a)(1) states: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged solely for property of a like kind that is to be held either for productive use in a trade or business or for investment.” Any real estate primarily held for investment or held for productive use in a business may be eligible for a 1031 exchange with these basic qualifications:
  • The new investment property must be of "like-kind" to the property being sold.
  • A personal residence will not qualify for the exchange, but a vacation home used predominantly as a rental property could qualify.
  • The like-kind property to be purchased must be identified within 45 days; the purchase must be completed within 180 days after the sale of the original property.
  • A Qualified Intermediary must ensure that all eligibility requirements are adhered to. For instance, the investor must not have access to funds from the sale during the exchange period, and a third-party Qualified Intermediary will hold the funds in an interest-bearing account.
  • There are limitations on the amount of capital gain that may be tax deferred. Consult an advisor for more information on this and additional stipulations.
Of course, always consult a tax advisor before making arrangements for a 1031 exchange.

USVI 1031 Exchange

The USVI is considered a US Property for a 1031 exchange - Investment properties on the islands are eligible. Learn why the US Virgin Islands is a great place to invest - and why now is the time to do it. Ready to find the perfect investment property? Contact a Christie's International Real Estate | US Virgin Islands agent today.  

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