Whistler condo? Don’t plan on tax-free exchange

Last week, I spoke with a friend who purchased a Whistler condominium a few years ago because of the strength of the dollar, the buzz of the upcoming Olympics and his love of downhill skiing. While he still enjoyed the Whistler area and the improvements made with Olympics dollars, the economy had taken its toll on his income and liquid assets.

The unit still was a great rental. Since the Olympics, the area has attracted even more international families, especially from Japan, Germany and Switzerland. However, my friend no longer had the luxury of allowing significant equity to be tied up in an investment home. He needed the cash to pay household bills and school tuitions.

Not only had his condominium, near Blackcomb Mountain and walking distance to Whistler Village, appreciated in value but he also benefited from the increase in the Canadian dollar. He will face a significant capital-gains tax, but needs the cash out of the condo to make ends meet.
“If I had not needed the cash,” my friend said, “I would have kept the condo or done a tax-deferred exchange.”

The tax-deferred exchange would have raised some red flags. With investment property in the U.S. taxpayers can defer capital gains taxes if you buy a “like kind” property of equal or greater value than the one you sold, provided you identify it within 45 days and purchase it within 180 days from the day you sold the first property. The Internal Revenue Service says any property outside of this county is not “like kind” so no capital-gains taxes can be deferred.

If you are buying or selling abroad, make sure you understand all tax and currency ramifications. It’s best to know going in rather than being surprised coming out.

Americans face two major issues when investing in real estate abroad. First, you have the appreciation or depreciation of the real estate itself – or the “property side” of the decision. You then have the currency risk when you sell the property and bring the money back into this country.

So, that little getaway on the other side of the world may look terrific and the exchange rate definitely favorable. But what will your money look like when it comes time to “repatriate?”