Presentation Transcript

1. U.S. Estate Tax Issues for Non-Resident Aliens Investing in U.S. Real Estate Presented by: Marc Fitapelli, Esq. Phone: 212-658-1501 Fax: 855-348-2735 Email: mfitapelli@fkesq.com 475 Park Avenue South, 12th Floor New York, New York 10016 www.fkesq.com
2. Introduction Non-resident aliens are subject to estate tax on all U.S. situs property All real estate in the United States and interests in a U.S. entity that owns U.S. real estate are generally considered U.S. situs property Estate tax is based on the net value of the U.S. situs property (i.e. equity minus debt) at the time of death There is only a $60,000 life time estate and GST tax exemption for non-resident aliens Different investment structures and strategies can be used to mitigate estate tax exposure
3. Direct Ownership Advantages: Non-resident aliens do not need to file a tax return unless the property is income producing, sold or the owner dies Very simple structure Disadvantages: Not suited for income producing property Non-resident alien will be exposed to U.S. Gift and Estate Taxes Personal liability exposure Non-resident alien may consider purchasing life insurance to mitigate U.S. Estate Tax exposure Non-resident alien’s presence in the U.S. will be known Sale of real estate is subject to 10% FIRPTA withholding Individual Real Estate
4. Ownership Through an LLC Advantages: No U.S. Gift Tax exposure because interests in the LLC can be gifted Disadvantages: U.S. income tax returns will disclose identity of individual investors who own more than 50% of company’s stock U.S. Estate Tax exposure, which may be mitigated with life insurance policy Individual LLC Real Estate
5. Ownership Through a Foreign Company Advantages: No U.S. Gift or Estate Tax exposure Disadvantages: U.S. income tax returns will disclose identity of individual investors who own more than 50% of the company’s stock Subject to U.S. Branch taxes and “double” taxation on income Generally more complex and costly Individual Foreign Company Real Estate
6. Indirect Ownership Through a Foreign Company Advantages: Individual investor is not required to file a federal or state income tax return No U.S. gift or estate tax exposure Only the name of the foreign corporation will likely need to be disclosed on federal and state tax returns U.S. branch profits tax will not apply Disadvantages: Most complex and expensive structure, requires tax professionals in multiple jurisdictions Individual Foreign Company U.S. Company Real Estate