Yes, if you already own property outside the United States. American investors can use a 1031 tax-deferred exchange to purchase Paris real estate by selling another foreign property—for example, exchanging a London apartment for one in Paris. Both properties must be located outside the U.S., and standard exchange requirements apply: 45-day identification period, 180-day completion deadline, and use of a qualified intermediary.

You cannot use a 1031 exchange to move from U.S. property into Paris real estate. Under Section 1031 of the Internal Revenue Code, domestic and foreign properties are not considered “like-kind,” making cross-border exchanges from the U.S. to France ineligible for tax deferral.

How 1031 Exchanges Work for International Properties

Domestic or international, the mechanism works the same way under 1031: defer U.S. capital gains taxes by reinvesting proceeds into like-kind property within specified timeframes.

The limitation comes when crossing the U.S. border. The IRS explicitly distinguishes between domestic and foreign real estate under Section 1031, reflecting the agency’s intent to limit what qualifies as a tax-deferred exchange. The result is, you can exchange U.S. property for U.S. property, or foreign property for foreign property, but not between the two categories.

“We regularly work with American clients who are surprised to learn they can’t use a 1031 exchange to transition from U.S. to French property,” explains Miranda Junowicz, founder of Paris Property Group. “But there are substantial tax benefits and acquisition strategies available for international buyers—you just need to know how to structure the purchase properly. The key is addressing these questions during the transaction, since changing ownership title after closing incurs significant costs and tax consequences.”

This distinction matters increasingly for families pursuing international diversification. Recent research from Goldman Sachs shows that real estate allocations among family offices reached 39 percent in the first half of 2025, up from 26 percent two years earlier. Nearly half now invest directly in private real estate rather than through fund structures, with families and their advisors managing properties across borders to balance personal use with income generation.

Why Foreign-to-Foreign Exchanges Are Rarely Used in France

While foreign-to-foreign 1031 exchanges are technically possible, they create complications when the foreign country has its own capital gains taxes. The issue lies in how the U.S. tax system interacts with local tax obligations.

The Foreign Tax Credit Problem

When you sell property in most countries, you pay local capital gains taxes immediately at closing. In France, the notaire collects these taxes before distributing proceeds to the seller. In a classic sale, American taxpayers are able to claim a foreign tax credit for taxes paid in France, offsetting their U.S. tax liability dollar-for-dollar.

The catch: if you defer the U.S. gain through a 1031 exchange, you cannot claim the foreign tax credit. You’ve already paid French capital gains taxes on the sale and, when you eventually sell the replacement property, you’ll owe U.S. taxes on the accumulated deferred gain without a credit for the French taxes paid earlier. You could end up paying taxes twice on the same income, defeating the purpose of the exchange.

What Are French Capital Gains Tax Rates?

France assesses capital gains on real estate at 36.2 percent for non-residents. This consists of 19 percent income tax plus 17.2 percent in social charges. This rate is comparable to what many American investors face in high-tax states.

The French system includes generous tapered relief that eliminates capital gains tax entirely after 22 years of ownership and social charges after 30 years. For properties held between six and 22 years, sellers receive a six percent reduction in the taxable gain for each year of ownership beyond the fifth year. A property owned for 10 years would qualify for a 30 percent reduction in the taxable gain.

The French system also permits sellers to increase their property’s basis by 15 percent if they’ve owned it for more than five years, accounting for improvements without requiring documentation. Alternatively, sellers can add the actual documented cost of major renovations, provided these expenses were incurred through licensed contractors and haven’t already been claimed as deductions for rental income tax purposes.

When Does a 1031 Exchange Make Sense for Foreign Property?

A 1031 exchange for foreign property makes strategic sense in countries without capital gains taxes. In jurisdictions like Belize or Belgium, an American investor selling property faces no local capital gains obligation. A 1031 exchange in these circumstances allows deferral of U.S. taxes while paying nothing locally, maximizing purchasing power.

For French property, the analysis points in the opposite direction. With capital gains rates in France approaching or exceeding U.S. rates (particularly when U.S. state taxes are factored in), the foreign tax credit mechanism typically provides better tax treatment than attempting a 1031 exchange. 

What Are Alternative Strategies for Tax-Efficient International Real Estate Investment?

“The absence of 1031 exchange benefits doesn’t mean you’re paying full freight on international real estate,” notes Miranda. “French law offers significant tax advantages for properly structured purchases—from ownership entities that minimize inheritance taxes to financing strategies that reduce wealth tax exposure. Working with advisors who understand both the U.S. and French systems allows you to capture these benefits from day one.”

Families with diverse property portfolios have adapted their real estate strategies to accommodate cross-border investments without relying on 1031 structures. In this regard, financial advisors have developed sophisticated frameworks for international diversification that account for varying tax regimes across jurisdictions. Rather than attempting to replicate U.S. tax deferral mechanisms abroad, many establish holding structures that optimize for local tax treatment while maintaining consolidated reporting for U.S. purposes.

Direct ownership allows greater flexibility in timing sales to coordinate with favorable tax positions, structuring entities to minimize wealth transfer taxes across generations, and holding properties through multiple market cycles to benefit from long-term capital gains treatment in jurisdictions (like France) that reward extended ownership.

What Are Paris Property Carrying Costs Compared to U.S. Cities?

Paris property carrying costs are significantly lower than major U.S. cities. Annual property taxes typically run between 0.1 and 0.2 percent of purchase price, while building fees for well-maintained properties average around 100 to 200 euros monthly. These lower ongoing costs can offset higher initial tax payments when purchasing without 1031 exchange benefits.

The long-term ownership incentives built into the French tax system reward investors who hold properties for decades, potentially making the initial tax payment less consequential over time.

How Do Buyers Structure Multi-Jurisdictional Real Estate Portfolios?

Investors with properties in multiple countries typically maintain separate regional portfolios rather than attempting cross-border 1031 exchanges. Buyers with diverse holdings often work with advisors to create a tiered allocation strategy that segments properties by purpose: some for legacy preservation and personal use, others for income generation with longer investment horizons, and liquid assets for tactical opportunities.

Within this structure, European properties often serve multiple functions simultaneously—a Paris apartment might provide a pied-à-terre for family use while appreciating as a long-term investment and offering inflation protection through real asset ownership. The inability to execute cross-border 1031 exchanges influences how these portfolios evolve over time. U.S. properties can continue to benefit from 1031 treatment as that portfolio adjusts, while European holdings build value through long-term appreciation and the gradual elimination of capital gains liability under French tapered relief provisions.

Key Considerations for Cross-Border Real Estate Taxation

The complexity of cross-border real estate taxation requires specialized guidance. Tax treaties between the United States and France can affect how various income streams and capital gains are treated, and individual circumstances around residency, investment structure, and timing can dramatically alter tax outcomes. The key is working with advisors who understand both systems and can help to navigate these considerations effectively.

Contact Paris Property Group to learn more about buying or selling property in Paris or to be introduced to a trusted mortgage professional.