(UPDATE) This is the beginning of a series of posts which will all add up to a book about nonresident investment in U.S. real estate.
(SECOND UPDATE) Yep I’ve rewritten this and expanded it. I was waiting for my daughter at rehearsal at the Sierra Madre Playhouse.
This book looks at the U.S. taxation of nonresidents and their U.S. investments in real estate – inbound investment.
It focuses on equity investments, rather than mortgage transactions. You’re a buyer, not a lender.
The three phases of real estate investment
When looking at a nonresident’s investment in U.S. real estate, we focus on three phases of that investment:
- The acquisition. The way in which title is acquired means everything to the investor’s future U.S. tax results. It is important to get things right. Fixing mistakes later can be expensive.
- The ownership phase. How is rental income taxed? What deductions may be taken against that income tax? What tax returns must be filed?
- The disposition. Eventually, the real estate is either sold, given away, exchanged, or transferred to heirs when the owner dies. All of these are dispositions. How will the United States tax that disposition?
Don’t assume anything
It is easy to pick up bad information. Not really bad, I guess, just wrong. The tax rules for nonresident investors are similar enough to the domestic rules to lead you to expensive problems.
Here’s an example, from real life:
A husband (nonresident and noncitizen) comes to the United States and buys a house for cash, and takes title in his own name. He then decides (prompted by his wife!) to add his wife, also a nonresident and noncitizen, as a tenant-in-common on the deed.
He records a quitclaim deed from himself to himself and his wife as tenants-in-common
This is probably a taxable gift from the husband to the wife.
Compare this to a husband and wife who are both U.S. citizens. The transfer just described would be a nonevent for U.S. gift tax purposes.
Objectives
This book is written for nonresidents of the United States. I hope to help my readers understand how their U.S. real estate investment will be taxed, so they can make good investment and tax decisions.
This is not an Encyclopedia of FIRPTA. We will follow the 80/20 rule and look at stuff you will see 80% of the time.
This book is also written with the intention that it will grow over time, because of reader suggestions, changes in laws, or just because I’m bored on a Wednesday night and need to do something so why not update the book?
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