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Investments in
U.S. real estate by non-US. residents
have increased in recent years due to
lower interest rates and reduced U.S.
capital gain rates. The rules for the
tax treatment of non-US. investors
buying and selling U.S. real property
are different in significant ways from
the general U.S. tax rules that apply to
non-residents investing in or conducting
business in the United States.
The withholding tax rules
under the Foreign
Investment in Real Property Tax Act ("FIRPTA")
require the
buyer of U.S. real property sold by a
non-US. investor to withhold 10% from
the gross selling price of the
U.S. real property rather than the net
gain to the seller.
The withholding tax is the mechanism for
the IRS to collect taxes, but does not
represent the final determination of the
amount of tax owed on a sale of the
property by a non-US. investor. The
amount of tax withheld offsets the
amount of tax that the non-US. investor
actually owes on the sale of the
property. As a result, the non-US.
investor may actually be entitled to a
refund upon filing his or her annual
income tax return if the amount withheld
exceeds the tax actually owed.
INVESTMENT STRUCTURES
The choice for non-US. investors
structuring investments in U.S. real
estate is typically between direct
ownership by individuals and ownership
by a domestic or foreign corporation.
Non-US. investors may be attracted to
foreign corporate structures to own U.S.
real estate which allows them to avoid
filing U.S. income tax returns
individually, protects against the U.S.
estate tax, and gives them anonymity.
This structure usually comes with a
higher tax cost compared to owning U.S.
property directly as an individual.
The best choice for structuring
investment in U.S. real estate will
depend on a number of factors and depend
on the unique circumstances of each
individual investor, but the complex tax
rules in this are should always be one
of the factors considered before
finalizing the investment structure.
CONTACT US
To
learn more about how our
tax
attorneys may help you, please
contact us
here or call us at
713.650.9700.
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