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Investing In Foreign Property

If you are not a resident of the US and want to purchase property with in the states, it is important to understand all the legal aspects behind it. Owning foreign property is a great investment, particularly when it is in high traffic areas such as Florida, New York and New Jersey. However, when people don`t fully comprehend legality issues, they may find themselves in a tricky situation. Without proper planning in advance of a real estate purchase, a foreign purchaser who dies owning U.S. property directly would owe U.S. estate taxes equal to upwards of 50% of the property value, regardless of whether the property is sold at death, which, in some cases, forces the owner to sell the property just to pay the estate taxes.

Before a foreign investor buys real estate here in the United States, he or she should consider structuring the transaction in such a way to avoid U.S. estate and gift taxes and income taxes in connection such real estate. Generally, if a nonresident alien dies owning U.S. assets, like real estate or direct ownership interests in U.S. companies, that have a U.S. taxing situs, those assets could be taxed at up to a whopping 46% rate (2006 rate) for estate tax purposes upon the owner?s death (this could amount to over 50% taking into account local state estate taxes). By planning and structuring the real property purchase utilizing off-shore entities, a foreign purchaser avoids U.S. estate taxes on such real property.

Depending on the country of residence, this same structure can also minimize U.S. income tax on the rental income and gains derived from the sale of the assets and real property. Foreign purchasers planning on acquiring several properties in the U.S. should consider purchasing each property through a separate U.S. subsidiary to limit the liability of each property solely to that property and to avoid: (1) U.S. income tax attributable to business operations or real estate investments in the U.S. conducted directly by foreign corporations and (2) U.S. income tax payable on the sale of U.S. real estate with respect to the proceeds that flow to the foreign parent corporation.