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I have owned my home for over 10 years. I would like to sell it and buy a new house, and I understand that if I do so, I can avoid paying capital gains. My question is, if I'm buying the new house in another country (Israel), am I still exempt from paying capital gains, or is it not recognized by the US?

I don't own any other property, and this would be my primary residence.

  • this website explains that like-kind investments for real estate can't be exchanged between domestic and foreign properties exeter1031.com/article_like_kind_replacement_property.aspx , I couldn't find this distinction in an IRS circular though, so start there and maybe contact them about it – CQM Apr 27 '15 at 15:00
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If you're selling your home - you can avoid taxes using primary residence exemption. You don't need to buy any new home instead.

If the home you're not selling is not your primary residence, and hasn't been for at least 2 years of the last 5, then you cannot avoid capital gains. You can defer them, using 1031 exchange. Note that you'll still be paying taxes on the capital gains, just not right now. You'll be paying them when you sell the asset you bought as an exchange (your gains will reduce your basis in that asset).

However, you cannot use 1031 exchange if you're exchanging a property in the US with a property in another country. 1031 is only used for like-kind assets, and the IRS explicitly says that assets in the US are not like-kind to assets outside of the US:

One exception for real estate is that property within the United States is not like-kind to property outside of the United States

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