The buyer should assess in advance the condition of choosing one or another method of acquiring residential real estate in the United States of America
Any of the forms of acquiring real estate has its pros and cons. First of all, as Offshore Express notes, a foreign buyer must decide for himself which of the following priorities are most important to him:
1. Anonymity, when the buyer's name and his real estate do not appear in any registration or other official documents.
2. Confidence that in the event of the owner's death, the property will pass without negative tax consequences to the beneficiaries he has chosen.
3. Avoidance of paying US estate tax (maximum rate – 48%), as well as state taxes payable upon the death of the direct owner.
4. Minimization of tax on profit from the sale of property and/or use of advantages of capital gains tax rates. Typically the federal rate is 15% plus state tax rates.
5. Minimizing contact with the US tax system.
6. Avoidance of imposition of rental tax and/or withholding from rental income of foreign owners.
7. Avoidance of branch profits tax (usually 30% of profits earned in the US by foreign companies).
8. And finally, the tax rules of the buyer's country and other problems that may arise 'from there' should be taken into account.
The most advisable may be to choose one specific goal as the primary one. For example, if the beneficiary is a US taxpayer (US citizen or resident).
So, alternatives are possible. Let us consider in detail the case of registering the legal title in the name of the buyer himself.
ADVANTAGES
The advantages of holding the title in the buyer's own name, which appears in registration and official documents, are as follows:
• Profit from the sale of real estate may be subject to a reduced capital gains tax (usually 15% plus state tax).
• No additional costs for maintaining a local or foreign legal entity.
• In the event of the owner's death, the property will acquire a 'stepped-up' tax basis, which may cancel or at least significantly reduce the taxable profit from the sale.
• After the owner's death, the property can be easily transferred to the beneficiary's name based on a regular will or power of attorney.
DISADVANTAGES
• Loss of privacy, since the title is recorded by official authorities.
• In the event of the owner's death, the market value of the property is subject to US estate tax.
• If the beneficiary is not a US citizen (regardless of whether he is a resident or not), only property worth 134 thousand US dollars is exempt from taxation.
From all of the above, it is easy to conclude that none of the forms of property ownership is perfect. Each has its pros and cons. The goal pursued by the buyer must be clearly defined. This is a necessary prerequisite for choosing one or another method of acquiring residential real estate in the United States of America.
It should also be taken into account that the US 'rules of the game' in the tax sphere are constantly changing, and the current legislation in this regard should always be taken into account. This means that a foreign buyer will never be harmed by competent advice.
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