US Estate Taxes on US Real Estate Owned by Nonresidents - a Big Surprise

US Nonresidents  are purchasing US real estate at dizzying rates.  The prices seem low and the locations are often really great compared with their home country. The real estate often is for a personal residence, second home, or residential and commercial investment.

Nonresidents pay the same income taxes on their rental properties (and personal properties) as paid by those who are US Citizens or green card holders.  That seems fair and works well.

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There is one surprise waiting in the darkness.  Nonresidents with property located in the US do not

pay the same estate tax as do residents.  When a nonresident dies, they must pay US estate taxes on the then fair market value of their property located in the US that exceeds $60,000.  The estate tax rate for 2015 on the amount in excess of $60,000 startes at 28% and increases to 40% for taxable amounts in excess of $1,000,000.  That is a high tax which is almost never considered when

nonresidents purchase property in the US.

Planning is required to avoid or reduce these estate taxes.  Many plannings use foreign corporations and trusts.  We recommend every nonresident purchasing  US real estate first plan  ahead for the possibility of these huge taxes  should an owner die while owning the property.  Contact us if you wish to learn more. Don D. Nelson, Attorney at Law. Kauffman Nelson LLC, Certified Public Accountants.  Email. ddnelson@gmail.com. 

Read More About Nonresident Taxation

Capital Gains on Sale of US Stock are Tax Free to US Nonresidents

US Nonresidents (non citizens or permanent residents) do not have to pay US capital gains taxes on the purchase and sale of stocks on the US stock exchange or other US situs stock.  This is a tremendous tax shelter for US nonresidents.  They are required however to pay US income taxes on dividends paid on those stocks.

Nonresidents also do not have to pay US income taxes on interest earned from banks, savings and loans and on US government bonds.

US TAX REPORTING REQUIREMENTS FOR NONRESIDENTS

By Don D. Nelson, International Tax Attorney

Over 35 years experience in US International Taxation

Nonresidents of the US must still file US tax returns to report their US source income even though they do not live in the United States.  They do get some benefits though. They do not have to report or pay tax on US Treasury Interest  and interest paid by banks and savings and loans.

Nonresidents file form 1040NR and if the income is sourced within a state (not passive intangible income) they may have to file a state tax return.  What types of income are taxable and require filing a US tax return?

• Rental Income
• Income Earned while working in the US
• Pension income from the US
• Dividend and Royalty Income
• Sale of US real property or other assets located in the USA.

Capital gains from the sale of US publicly traded corporations are exempt from taxation 

The US has tax treaties with many countries in which the nonresident may be a citizen which reduce or exempt US withholding on certain types of income.  It is important you review these treaties to determine if there might be a tax saving benefit.  The IRS generally will not correct your return if you fail to take the favorable treaty provisions into account on your tax return.

This is a complex area of taxation and guidance is essential. We can help. Email us with questions at ddnelson@gmail.com.