United States estate tax on non-Americans (foreigners) who invest in U.S. real estate
Non-Americans (“Foreigners”) have invested significant amounts in U.S. real estate since 2008 and continue to invest today. Over the years these investments have appreciated in value. And they generate a good cash flow. As a result, rarely does the foreigner wish to sell the investments. But the US estate tax equals 40% on the VALUE of the real estate at death! Is there a good solution? Except as set forth below, no.
In a nut shell, any real estate that a non-American owns at death is subject to estate tax. And the tax is draconian. The first $60,000 of the real estate VALUE (measured at the time of death) is tax free. After that, the tax rate starts at 20%, reaching 40% where the assets are valued over $1,000,000
Example: Assume that a Foreigner invested $2,000,000 in U.S. real estate. At the time of death, the properties are worth $3,000,000. Given the estate tax brackets, on a $3,000,000 value, the estate tax is over $1,000,000. And the amount is due at death. How will the family pay the tax?
This is the trap many foreign investors find themselves in. And the only known legal way to avoid the estate tax is to sell the real estate. Period.
Until now. As set forth below, we have a solution.
Here are the issues you will investigate.
1. If I hold the real estate in an LLC or partnership with that solve the problem?
No. LLCs and partnerships are transparent for estate tax purposes.
2. Can I gift the real estate to a family member, even as late as the day I die?
No. The full name of the tax is estate and gift tax, and gifts are subject to the exact same tax. Otherwise, the tax could always be avoided by gifting away things a day before death.
3. What if the real estate is owned by a U.S. company?
Won’t help. The estate tax also applies to shares the foreigner owns in the US company.
4. Can I transfer the real estate to a non-U.S. company and thus avoid estate tax?
No. The transfer is deemed a sale under U.S. FIRPTA law and generates immediate U.S. (and possibly foreign) capital gains tax.
5. Can I transfer the real estate to a trust and thus avoid estate tax?
No. The transfer is deemed a sale under U.S. FIRPTA law and generates immediate U.S. (and possibly foreign) capital gains tax
So is there a legal solution short of selling the real estate?
Yes. Only one. We identified this problem in 2009 and spend significant time solving it. And the solution had to be risk free, simple to implement and maintain, and affordable. And we solved it. Our elegant solution has been approved in writing by the largest most prestigious US tax law firms.
If you are a foreign investor in US real estate, and wish to discuss this matter, please contact us.
Monte Silver
US tax lawyer