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Without the right investment tax plan, foreign nationals may be subject to unnecessary U.S. tax liabilities. Please fill out the contact form to learn how we can help mitigate adverse U.S. tax implications that may apply to foreign nationals.
U.S. Tax Considerations for Foreign Nationals Investing in the United States
As a foreign investor, there are unique tax matters to consider before purchasing real estate. Neglecting to explore these considerations can lead to steep taxation, at times as high as 40%. Below is a brief overview of facts to plan for; please note, however, that this list should not substitute the personalized advice of your trusted CPA.
There are two main types of foreign investors: resident aliens and nonresident aliens, as further described below.
Generally, foreign individuals who are either lawful permanent residents or who spend long periods of time in the United States (in general, greater than 120 days per year). These individuals are taxed on income earned anywhere in the world, even when spending part of their time outside of the United States.
Generally, foreign individuals who are not considered resident aliens (e.g., because they spend a short amount of time in the United States). These individuals are taxed only on certain types of U.S.-source income.
One of the most important factors a resident alien or nonresident alien should evaluate—with the help of an international tax specialist—is whether he or she should remain outside of the United States and be taxed as a nonresident alien or reside in the United States and be taxed as a U.S. resident for tax purposes. What catches most foreign individuals, both non-resident and resident alike, is the lack of an exit strategy. Not structuring the right plan may leave assets vulnerable to U.S. tax laws and outside of available tax treaties, which may cause unnecessary tax burdens that could have been legally avoided.
U.S. Taxes Applicable to Foreign Nationals
Income Tax on Foreign Nationals
In the United States, individual income taxation rates range from 10% to 39.6%—on corporations, these rates range from 15% to 39%. On real estate, there is a special capital gains tax of 20% for properties owned for over a year. However, this applies only to individuals—corporate tax gains may be taxed as high as 39%. Learn about FIRPTA.
Estate Tax on Foreign Nationals
U.S. assets of nonresidents, including real estate assets, are subject to U.S. estate tax. For individuals, the first $60,000 of the total value is excluded; thereafter, estate tax rates go up to 40%.
Gift Tax on Foreign Nationals
Gift taxes are roughly equal to Estate Tax, depending on the value of the gift.