Since Section 1031 rules prohibit an Exchangor from selling US property and purchasing foreign property, the easiest fix to a client that wants to acquire that special offshore island residence is this; sell qualifying US property, buy qualifying US property and immediately borrow against the new property using the loan proceeds to purchase that island property. Once you own the island property, you can exchange it for other like-kind island (foreign) property going forward.

Of course, its use as investment rental property would still apply.