1. Tax implications of Investing In Real Estate in the United States
Presented By Todd Baldwin, CPA

2. Taxes Affecting the foreign Investor.
Income Taxes
Rental Property Profits.
Gains on Sale of property
Estate Taxes
Upon the death of a property owner

3. How is income taxed in the US
Residents are taxed on world wide income
Non-residents are taxed on US source income only

4. Income Taxes Individual Rates Capital gains Start at 10%
Can be as high as 39.5%
Capital gains
Range from 15% up to 23.5% of long term gains.
A holding period of over 12 months is considered long term

5. Estate tax issues The Estate tax rate is currently 40%
The exemption is only $60,000 for non residents
This means that if you buy a $100,000 property then:
Upon death, the estate tax will be 40% of the value exceeding $60,000.
$40,000 times 40% = $16,000

6. Estate tax Mitigation Reduce Estate tax exposure:
Own property through partnership LLC and keep each partner’s ownership under the $60,000 threshold
Purchase life insurance under an ILIT to mitigate the estate tax.
Own real estate through a foreign corporation.
Mortgage property to keep under $60,000 equity

7. Estate tax Mitigation-Cont’d
Own the US partnership through a foreign partnership.
Sell the property if any owner becomes terminally ill.

8. Possible LLC Tax Structures For Non-Resident Owners
C-Corporation
Form 1120
Partnership
Form 1065
Disregarded Entity
Form 1040
Not a pass through
Taxed at 37% Federal
Taxed at 5% State (FL)
Dividends taxed at 18-24%
No capital gains relief
Can be owned by any type of entity
Pass through
Taxed at partner level up to 39.9%
No state tax
Capital gains 18-24%
Taxed at partner level up to 39.9%
Salary
Tax Implications
5728 Major Blvd., Suite 501 · Orlando, FL 32819
Phone (407) · Fax (407)

9. FIRPTA and its implications
There is a 15% withholding required if a property is sold.
15% is based on the sales price
It is possible to file for a withholding certificate to reduce or eliminate this tax
Must be done before sale occurs
If sales price is under $300,000 and purchaser will reside there, then no FIRPTA requirement.

10. US Tax ID numbers Required to file tax returns Documentation required
Passport
Certified copy of passport
Expires if not used in 2 years (new)

11. Ownership of US properties
Properties can be owned by the following manners:
Individually
A Trust
An LLC
A Corporation
A Partnership

12. LLC’s-Limited Liability Companies
Most desirable structure to own Real Estate
Flexibility in Tax structure: Can be treated as:
Disregarded Entity
Partnership
Corporation

13. Forms to be filed Indvidual Partnership Corporation 1040NR 1065 8804
8805
Corporation
1120

14. Fee considerations
If you own a property individually then only one 1040NR tax return must be filed. Fairly inexpensive.
For LLC’s treated as partnerships you must file
One 1065 tax return plus
One 1040NR for each member in the LLC.
Obviously more expensive to file
Corporations File an 1120

15. US Residency US Citizen Green Card Holder
Any person meeting substantial presence test
Closer connection to a foreign country exception

16. Physical Presence Test
Year
Days In US
Percentage
Total
2008
130
2007
120
.33 40
2006
.16 20
Total Days 190 – Resident for Tax Purposes
121
122
40.66
20.33
Total Days 182 – Non-Resident for Tax Purposes

17. Other Implications CFC – Controlled Foreign Corporations
FP – Foreign Partnerships

18. Practical Income Tax Procedures
Tax returns for country of non-residence should be done first
Country of residency should be done last
Credits are received in the country of residency

19. Common Mistakes Made by Foreigners
Professionals are not consulted
Not hiring qualified professional help
Fail to file tax returns

20. Publications and Forms to Assist Taxpayers
Publication 519, US Tax Guide for Aliens
IRS Website