A US rental can't be swapped tax-deferred into a Dominican villa. Here's when a foreign-for-foreign 1031 exchange does work, and why the 45/180-day clock rarely fits a pre-construction purchase.
No. You can't do a 1031 exchange from a US property into a Dominican Republic villa, because Section 1031 of the Internal Revenue Code says US and foreign real estate are not "like kind." A 1031 exchange of foreign property only works foreign-for-foreign: you sell an investment property outside the US and buy another one outside the US. Even then, the 45- and 180-day deadlines rarely fit a pre-construction purchase.
The Short Version
- US property → Dominican villa: not allowed under Section 1031(h). You owe tax on the gain in the year you sell.
- Foreign property → Dominican villa: this can qualify if both properties are held for investment and a qualified intermediary holds the money.
- The clock: 45 days to identify the replacement property and 180 days to receive it. Construction doesn't pause either deadline.
- Pre-construction problem: only real property you've received, or improvements actually built, by day 180 count toward the exchange.
- Separate systems: a 1031 exchange defers US tax only. Dominican taxes and CONFOTUR follow their own rules.
This is general information, not tax advice. Your situation needs a qualified US tax advisor.
Can You Do a 1031 Exchange From US Property Into the Dominican Republic?
No. The statute rules it out explicitly. Section 1031(h) of the Internal Revenue Code states that real property located in the United States and real property located outside the United States are not property of a like kind. Since the 2017 Tax Cuts and Jobs Act, Section 1031 has also applied only to real property. You can't get around the rule by exchanging furniture, equipment or other assets.
What this means for a US rental you want to sell
Say you own a rental condo in Orlando with a large gain on paper, and you'd like to move that money into a hillside villa above Las Terrenas. Selling the condo triggers federal capital-gains tax and depreciation recapture in the year of sale, the same as if you bought nothing afterwards. A qualified intermediary can't fix this. The problem is where the property sits, not the paperwork.
The rule works in both directions
If you later sell a Dominican villa, you can't exchange it into US property either. Do you plan to keep this capital abroad for good, or bring it home one day? Answer that before you buy. If you bring it home, you'll pay the tax on the gain when you do.
When Does a Foreign Like-Kind Exchange Actually Work?
A foreign-for-foreign exchange can qualify. Investment real estate outside the US counts as like-kind to other investment real estate outside the US. US citizens and green-card holders are taxed on worldwide income, so the IRS taxes a gain on a rental in Mexico, Costa Rica or France. A foreign like-kind exchange can defer that tax.
The situation is fairly common. Knight Frank's annual Wealth Report research tracks how high-net-worth buyers spread second homes and investment property across international markets. Plenty of US investors already own property abroad that they could exchange.
The conditions that still apply
- Investment use on both sides: neither property can be your personal residence.
- A qualified intermediary holds the proceeds: if the cash passes through your hands, the exchange fails.
- Equal or greater value: to defer the whole gain, you have to reinvest all the net proceeds. Any cash left over ("boot") is taxable.
- Same taxpayer: the person or entity that sold has to take title to the replacement property.
What about a vacation villa you also use?
Revenue Procedure 2008-16 gives the IRS's safe-harbour test for this. A dwelling counts as investment property if you own it for at least 24 months after the exchange. In each of those two 12-month periods, you have to rent it at fair market rent for 14 days or more. Your personal use can't go above 14 days or 10% of the rented days, whichever is greater. That makes the villa's rental performance central to your plan. Our Las Terrenas rental income analysis lets you test whether a villa would really work as a rental.
Which Exchanges Qualify? A 1031 Exchange Dominican Republic Reference
The table below covers the most common situations. The second row is the only route into a Dominican villa.
| You sell | You buy | Like-kind under Section 1031? | What happens to the gain |
|---|---|---|---|
| Rental property in the US | Villa in the Dominican Republic | No, under Section 1031(h) | US tax due in the year of sale |
| Rental property abroad (e.g. Mexico, Costa Rica) | Villa in the Dominican Republic | Can qualify | US tax deferred if every rule is met; the foreign country may still tax the sale |
| Villa in the Dominican Republic | Rental property in the US | No | US tax due; Dominican rules on the sale also apply |
| Villa in the Dominican Republic | Another rental abroad | Can qualify | US tax deferred |
| Your primary home, anywhere | Any villa | No, because it isn't investment property | The Section 121 home-sale exclusion may apply separately |
People often misread the second row. A 1031 exchange defers US federal tax only. Mexico, France or wherever your current property is located will tax the sale under its own law. Whether a foreign tax credit later offsets the US side depends on your numbers, and your advisor needs to calculate it.
Why Is the Pre-Construction 1031 Timeline So Hard to Meet?
The deadlines are fixed, and a construction schedule doesn't match them. From the day your old property closes, you have 45 calendar days to identify the replacement property in writing. You have 180 days to receive it, or less if your tax return due date (including extensions) comes first. Weekends, holidays and permit queues don't stop the clock.
| Deadline | What the exchange requires | What a pre-construction purchase usually involves |
|---|---|---|
| Day 0 | Your old property closes; the qualified intermediary holds the proceeds | Reservation, at Sienna with a $5,000 refundable deposit |
| By day 45 | Identify replacement property in writing (three-property or 200% rule) | Choose a lot and a villa plan; your lawyer reviews the contract and title |
| By day 180 | Receive the replacement property | The lot closing can happen; the villa is paid for in stages and delivered later |
| After day 180 | Nothing more counts toward the exchange | Any exchange money still unspent becomes taxable boot |
The identification rules come from Treasury Regulation §1.1031(k)-1. You can name up to three properties of any value, or any number of properties if their combined value is no more than 200% of the property you sold.
The lot can fit the deadline. The villa usually can't.
Land is real property. You can close on a lot and take title within 180 days. A villa that hasn't been built is only a contract right until it exists. Revenue Procedure 2000-37 allows an "improvement exchange," where an exchange accommodation titleholder holds the property while construction happens. However, only improvements actually in place by day 180 count, and a full villa build, from foundations to handover, rarely finishes in six months.
Price makes this harder. Lots at Sienna start at $74,100, and villas run from $200,100 to $926,550 for the villa alone. If your foreign sale brought in more than the lot price, closing on the lot by itself leaves the difference as taxable boot. On most exchanges, most of the value needs to go into the villa, and the villa is the part that doesn't fit the deadline.
The foreign layer adds work
Most US qualified intermediaries are set up for US closings. Several things need specialists in both countries:
- holding Dominican title through an accommodation titleholder
- wiring proceeds to a Dominican closing
- confirming when you've legally "received" the property under Dominican title registration
You may also need to fly in on short notice during a 45-day window. The State Department's Dominican Republic country information page sets out the entry requirements for US passport holders.
How Does Ownership Structure Affect a Foreign Like-Kind Exchange?
The replacement has to be real property, held by the same taxpayer who sold. That limits how you can hold the villa.
Buying through a Dominican company
If you buy through a Dominican company, you're buying shares, and shares aren't real property. That generally ends like-kind treatment. The exception is an entity treated as disregarded for US tax purposes, and how the IRS classifies a Dominican SRL is a technical question for your advisor. Our guide to holding a villa personally or through a company explains the trade-offs on the Dominican side.
Fractional shares
Sienna's fractional model starts from about $190,000 per share. Each property has 2–3 co-owners, and each co-owner gets 10, 15 or 20 days per year. Whether a share counts as an undivided interest in real estate or as an interest in an entity decides whether it can be part of an exchange. Your fixed usage days also have to sit within the personal-use limits above. Ask for the structure documents first, and don't assume a share qualifies.
Does a 1031 Exchange Change Your Dominican Taxes or CONFOTUR?
No. A 1031 exchange defers US tax, while CONFOTUR is a Dominican exemption under Law 158-01. Using one has no effect on the other.
Sienna holds a provisional classification under Resolution 203-2024, extended by Resolución 61-2026. The definitive classification was filed in July 2026 and is still pending, and the benefits take effect only once it is issued. For a lot plus a Sienna-built villa, the benefits would be:
- 0% transfer tax at closing, instead of the standard 3%
- 0% annual property tax (IPI), instead of the standard 1%, for up to 15 years counted from completion of the project's works
The benefits apply only to the first buyer who buys directly from the developer. They don't pass to a later buyer on resale.
You might think about buying the lot and hiring your own builder to control the schedule. If you do, CONFOTUR covers the land value only, and your rental income stays taxable.
A 1031 exchange can defer what you owe the IRS. CONFOTUR, once the definitive classification is issued, reduces what you owe in the Dominican Republic. The two operate under separate rules, and one never covers for the other.
A Dominican tax exemption also doesn't remove your US reporting obligations. Our guide to how CONFOTUR interacts with US tax filing explains what you still declare at home.
What Are the Alternatives If a 1031 Exchange Doesn't Fit?
If your investment property is in the US, which is true for most US investors, the realistic route is to sell, pay the tax, and invest what's left. That's often fine. The question is whether a villa makes sense with after-tax money. Sienna projects rental yields of 6–9% annually, and you should test that against your actual after-tax figure.
Options to discuss with your advisor:
- Sell and pay the tax, then buy a lot or villa with milestone payments spread over the build.
- Installment sale (Section 453): if you can carry part of the buyer's financing, you pay tax on the gain over the years you receive payments.
- Keep the US rental and borrow against it. Compare that with financing options for a pre-construction villa.
- Wait if you own foreign property and the 180-day deadline can't work right now. A rushed exchange that fails costs more than one you never started.
Frequently Asked Questions
Can I sell my Florida rental and buy a Las Terrenas villa without paying capital-gains tax?
No. Section 1031(h) treats US and foreign real property as not like-kind, so the Florida sale is taxable in the year it closes. You can still buy the villa with the proceeds after tax.
I own a rental in Mexico. Can I exchange it into a Dominican villa?
Possibly. That's a foreign-for-foreign exchange, and it can defer US tax. You need a qualified intermediary, investment use on both sides, written identification within 45 days and receipt within 180 days. Mexico still taxes the sale under its own rules.
Does a pre-construction 1031 timeline ever work?
Sometimes, at least partly. You can close on a lot inside 180 days. Under an improvement exchange, only construction completed by day 180 counts. Any exchange money not used by then is taxable boot.
Can I exchange a Dominican villa into US property later?
No. The like-kind restriction works in both directions. Selling a Dominican villa to buy in the US is a taxable sale for US purposes.
The Bottom Line
You can't exchange US property into a Dominican villa. A foreign-for-foreign exchange works only if you identify the replacement within 45 days and receive real property within 180, which a pre-construction villa rarely allows. Before you sell anything, take your plan to a qualified US tax advisor and a qualified intermediary who handles foreign closings. If you're still exploring what a rental-ready villa could look like, try sketching one in the Sienna villa planner.
This article provides general information about property in the Dominican Republic and is not personal financial, legal, or tax advice. Figures such as CONFOTUR benefits, taxes, and returns depend on your circumstances and can change — confirm specifics with a licensed Dominican attorney, tax advisor, or the relevant authority before making a decision.
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Written by
Sienna Terrenas Editorial Team
The Sienna Terrenas editorial team covers buying, owning, and living in Las Terrenas, Dominican Republic — from the purchase process and CONFOTUR tax strategy to villa construction and Caribbean community life, drawing on the team's on-the-ground experience in the area. Meet the Sienna Terrenas team.
