PROPERTY LOCATED IN DIFFERENT STATES

The Internal Revenue Service recognizes all real property within the United States as being "like-kind" and consequently grants deferred treatment to exchanges of any such property.  The term “United States”, when used in a geographical sense, is applicable only to the actual fifty states and the District of Columbia.  Property located outside the United States or located in U.S.-held principalities is considered outside the scope of §1031 and not like-kind. 

However, some state taxing authorities do not recognize property outside the state’s borders as being of like-kind to property within the state.  Although each situation is different, many states do not grant deferral treatment for replacement properties outside their boundaries.  This simply means that additional taxes or other costs may be incurred at the closing of the sale of relinquished property; it does not mean that you cannot effect an exchange for property in different states.