Helping clients to achieve their goals
Issues For Non U.S. Buyers Information
Prior to making any purchase of U.S. real estate, non U.S. buyers should consult qualified legal and tax advisors regarding the form of ownership that should be used and the tax implications for different ownership structures. Buying directly in the investor's personal name has significant consequences for annual U.S. income tax computation and reporting and applicable U.S. taxes in the event of sale of the property or death of the investor. Subject to the specifics of each case, the general alternatives and consequences are as follows:
If a Foreign Individual invests directly in U.S. real property:
- Foreign Individual will be deemed to be engaged in a U.S. trade or business
- Foreign Individual is required to file annual U.S. income tax returns and pay tax on rental income (possibly up to 39.6% unless they make certain income elections on their returns.
- Upon disposition of U.S. real property by a Foreign Individual, sale proceeds are
General alternatives that can be considered to help reduce the total of applicable U.S. taxes are the following:
1. Foreign Individual invests in U.S. real property indirectly through a Foreign Corporation
2. Foreign Individual invests in U.S. real property indirectly through a U.S. Corporation
3. Foreign Individual invests in U.S. real property indirectly through a U.S. Corporation owned by a Foreign Corporation
The above alternatives have different consequences as to income taxes, estate taxes and income tax reporting. Each option should be reviewed with qualified U.S. legal and tax advisors so as to effectively plan an acquisition and execute the purchase in a manner that meets the goals of the investors and avoids unexpected costs and taxes and significant loss of returns upon disposition. It is generally very difficult and costly to change and remedy ownership structures after realizing a purchase.
Property tax payments are required as an additional cost of real property ownership. These payments can be added to a loan or paid directly to the taxing agency. Failure to pay property taxes can lead to financial penalties and even loss of the property. Just as a taxing agency (usually a county) has remedies against a property owner for failure to pay property taxes, so may a lender, since the failure to pay usually is also deemed a breach of the loan agreement. It is important to know that change in ownership, such as altering title among family members and differing entities may cause the property value to be reassessed, and the property tax payments to increase.