TAXATION FOR FOREIGNERS PURCHASING REAL ESTATE IN THE UNITED STATES

Taxation

// HOW TO MINIMIZE TAXES WHEN BUYING PROPERTY?

Buying an apartment or other real estate in New York is an exciting and exciting experience. At this point, it is very important to surround yourself with professionals and not only to find and buy a quality property, but also to choose an approach to minimize the tax consequences. As already explained on the pages of the website: the best way to buy real estate by foreigners lies in its purchase on behalf of a limited liability company.

// INCOME TAX

It is important to know that the IRS (US Federal Tax Service) requires foreigners to pay income taxes on any income originating in / from the United States of America. Rental income for real estate depends on a fixed 30% tax on non-resident income (except when this figure is lower due to the signing of an agreement to avoid double taxation).

The presence of property rights through the company does not exclude the need to pay income tax. However, depreciation and transaction costs from your investments or temporary housing will often lead to the creation of a tax shield for many years.

// CAPITAL GAINS TAX

When a foreigner sells property in the United States, he must pay capital gains taxes (tax withheld by FIRTPA). The IRS will retain 10% of the total price of the actual sale of real estate. When filing a tax return on capital gains in cases where any refund is expected, the funds will be returned to the seller. Capital gains tax for US residents and companies is 15-20%, while capital gains tax for foreign owners is about 30%.

Owning property through a limited liability company eliminates the 10% payment procedure (FIRPTA) and reduces the capital gains tax.

// REAL ESTATE TRANSFER TAX – HIGH VALUE PROPERTY TAX

Property transfer tax is usually paid by the property seller. One of the exceptions are new buildings, when the buyer is offered to pay real estate transfer tax at the sale price. There is both a city real estate transfer tax and a state tax. In New York, a property transfer tax for a property with a value below $ 500,000 is 1% of the purchase price. For a property of equal value of $ 500,000 or more, the property transfer tax is 1,425%. State tax on the transfer of real estate in New York is 0.4% of the purchase price, regardless of the value of the property.

Also in New York, there is an additional tax called high-value property tax, which is 1% of the value of real estate at a price above $ 1 million. A property tax of high value is paid by the buyer.

// INHERITANCE TAX

In the event of the death of the owner, the inheritance tax must be paid by the owner of the property of the deceased. Any tangible or personal property located in the United States and valued at more than $ 60,000 requires the payment of the estate tax when the foreign owner dies. Currently, inheritance tax in New York is 16%.

The availability of real estate through a limited liability company cancels the risk of paying the inheritance tax and allows you to pay it in your country of residence. Corporation or LLC should function.

// GIFT TAX

If you decide to donate your property at a certain point in time to relatives or friends, this will result in the need to pay a gift tax. The gift tax is 40%. For donations, a person who is not a US citizen and does not live in the United States may make annual gifts in the amount of $ 14,000 to any person. At the moment, such a person may also make annual gifts to his spouse / non-citizen / non-US citizen in the amount of $ 143,000, without the need to pay the above tax.

Ownership through a limited liability company involves the payment of a gift tax in the country of residence.

// SOLUTION: LIMITED LIABILITY COMPANY IN THE USA (LLC)

US legal entities owned by foreign nationals are not considered foreign for tax purposes. As a result, for the purchase of real estate, it is beneficial for foreign buyers to establish an LLC in the USA. This provides not only tax breaks, but also protects the buyer from any personal lawsuits in the United States. In this case, the investor’s foreign assets are never at risk. In addition, an LLC provides additional confidentiality to a foreign buyer, since such a buyer is not required to publicly register the ownership of the LLC.

Contact us and we will connect you with lawyers who will provide more detailed information on this issue.

// WHAT IS A DOUBLE TAX TREATY AND HOW WILL IT AFFECT MY TAX LIABILITY?

The United States has concluded similar agreements with many countries. Such agreements allow foreigners to pay lower taxes or be exempted from paying US taxes on certain items. Visit the IRS website for more information on exactly which double tax treaties between the United States and your country apply.