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!
I didn't find the right solution from the internet. References
