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U.S. citizens, resident aliens and domestic corporations are subject to taxation on theirworldwide income, including real estate income. United States citizens and resident aliens arealso subject to a U.S. estate tax and gift tax on transfers of their worldwide assets, includingreal estate.
A primary planning tool available to certain Foreign Investors is theirability to rely on a United States tax treaty that may exist with the Foreign Investor’s hostcountry. This type of tax treaty will assure that there is no double taxation between the twocountries.
Income will only be taxed at the maximum highest rate of both countries. Treaties may alsoprovide for the prevention of double taxation under the estate tax laws of the two countries,reduce or eliminate the Branch Tax and generally reduce United States taxes on the ForeignInvestor’s interest, dividends and business income that are earned from U.S. sources.
Here' the IRS guidance itself: http://www.irs.gov/Individuals/International-Taxpayers/Taxation-of-Nonresident-Aliens
Are you saying that although the property is appraised at $500,000 capital gain tax in avoided totally in this transaction? further I was under the impression that no private us citizen can receive more than $100,000 in any tax year
I meant $100,000 per annum in gifts per tax year
Ok, a couple of things ... the 100,000 you are referencing is the DECLARATION (not a tax form, but rather a money tracking form that IRS provides to treasury, for the purposes of tracking money flows from outside the to inside the US i.e., money laundering, drugs, arms trade, etc) this is a required form but is an informational form that generates NO TAX ...
And yes, if you are only selling for what you have in the property, there is no gain
Gains is sales price minus basis
YOU are very welcome
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By the way, the links I have provided, bith to te IRS guidance AND the 3520 from will stay active for you
Lane, it strikes me that when you say selling a property at cost and well bellow market price does not generate Capital gains tax would show a big hole in the Tax code as a first generation buyer at 100 could sell to a Beneficiary say 20 years later at cost. This second generation buyer could sell on say 30 years later to a further beneficiary at cost and so it could go on forever not withstanding the value of the property now being in the millions??
Thank you once again. I know I was co-mingling a bit but the situation is real. I do wish to sell to someone at 300,000 when in this case there are comp's at 500,000! -- similar apartments in the same building on offer!
I was just afraid that the seller, the LLC, bearing in mind that the holding Co is offshore, would be presented with a bill from the IRS for either the Capital gains on the 200, 000 of so-called "under market" value or alternatively get billed for Gift tax on a similar amount. The person in question is close friend whom I wish to assist get into the property market with an advantageous deal without prejudicing myself further than the discounted price!
I assume from your answer that I would be I the hands of a judgement call by the IRS as far as a gift tax burden was concerned in this particular instance, but I could be totally clear as far as Capital gains are concerned.
The seller in this instance has no exposure to tax with any country which the USA has double taxation agreements.
Again thank you Lane,
Apologies for dragging this on but I am still not completely clear in my mind.
I was under the impression that the Life Time exclusion of 5.25M applied to the recipient.
However are there not different rules and limits on the donor? I understood that the limits placed on the Donor were different and that Donations or Gift tax was levied against the donor when certain annual amounts to an individual were exceeded.
I know that if this is the case it would only apply to a USA resident Donor.
The LLC is the taxpayer, owner, and a USA resident structure. Would it not be liable for the Gift/Donations tax obligations if there are any in this instances ?