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I am a foreigner looking to invest in the us an potentially…

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I am a foreigner...

I am a foreigner looking to invest in the us an potentially move to the us. most investment will be in real estate what is the structure that will minimize the taxes. If I moved to the us I will not need to withdraw money from my investments. I was thinking of investing in real estate under a c orp. and dissolved it when I move out of the country

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

I would also like to know if I can withdraw money invested in a c corp without paying taxes

Submitted: 4 months ago.Category: Tax
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1/2/2018
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
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Hi, my name is Mark. I will be happy to help you with your questions. What is your plan with the real estate? Will these be rentals or are you planning on selling the properties?

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

You have two options as a foreign citizen (a LLC or a C-Corporation). I can go through both options once I learn more about your situation.

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Customer reply replied 4 months ago
I am a non Dom in London I don't pay taxes in the UK for foreign income but can't use tax treaty. The idea is to do 1031 for the c Corp and refinance real estate.
Customer reply replied 4 months ago
The plan is to invest do 1031 and or refinance. To take out the monez
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

A C-Corporation can be used for 1031 Exchanges. This is a great method for deferring gains on the sale. The basis in the old property would carryover to the new property. You would only pay taxes if you receive boot (cash) out of the transaction. With a corporation, there are two levels of tax. The corporation is taxed on the net income of the corporation, and it is taxed again when the money is distributed to the shareholders as dividends. If you form a LLC, you would have a single member LLC. This is considered a disregarded entity. You would still only file 1 tax return, and individual return. You would be able to reduce the gain on the rental activity by 2.5% of the purchase price of the assets (up to 20% of the net rental income). If the properties are distributed from the C-Corporation they are done at the fair market value. This would be considered a dividend for the shareholder. If the properties are distributed from a LLC to a member, the basis of the property carries over to the shareholder. The gain would be deferred until sold.

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Customer reply replied 4 months ago
The distribution to a non is resident will be taxes ? Can't it be qualified as capital gain ? More over the c Corp can borrow money from a related entity without paying taxes on interest ?
Finally a c Corp can expense business expenses ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Yes, these will be taxed as a dividend. With a dividend, there are two types qualified and non-qualified. If it is a qualified dividend it receives the same treatment as a Capital Gain. Yes, A C-Corporation can borrow from a related party but there is an imputed interest that would need to be recognized by the related partyhttps://apps.irs.gov/app/picklist/list/federalRates.html

https://www.grfcpa.com/resources/washington-tax-update/irs-make-sure-loans-are-business-like

Yes, a C-Corporation would be able to deduct any expenses that are ordinary and necessary.

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Customer reply replied 4 months ago
For the imputed interest I see the minimum but is there a maximum or an industry standard ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

The industry standard would be an amount in addition to the Fed rate. Of course other factors would need to be considered (for instance is the loan collateralized)

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Customer reply replied 4 months ago
Do you think is a good idea to invest in real estate thrue a c Corp and distribute the gain as dividend or dissolution of the company once I left the country ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Usually C-Corporation are not used for real estate. LLC's are more common. The reason for this is that it is easier to distribute the assets (properties from the LLC). With a C-Corporation, if you dissolve the corporation you would need to distribute the assets to the shareholders. If 1031 exchanges were involved then the gain would be triggered. If you use a LLC, the properties would be distributed at their basis and their would not be a taxable situation that is triggered.

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Customer reply replied 4 months ago
When you speak about LLC you implied pass through entity ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

If there are 2 or more members an LLC would be a pass through entity. An LLC by default is treated as a partnership. Since it is not possible to have a partnership with only 1 person, a single member LLC is treated as a disregarded entity.

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Customer reply replied 4 months ago
A disregarded entity William the owner need an itin and to file k1 ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Correct, the owner would need an ITIN.

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Customer reply replied 4 months ago
If I move to the us in 2019 for 3 years how do I optimized the legal structure in order not to be taxed on my portfolio interest during this 3 years.
I will not to cash out from the investment while I am in the us.
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

If you are participating in 1031 exchanges and are not taking cash out of the transaction there you likely would be able to defer the tax on the transactions.

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Customer reply replied 4 months ago
Can you do 1031 on portfolio interest ?
Example buying more bonds with the interest ?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

No a 1031 exchange is not available for stocks and bonds.

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Customer reply replied 4 months ago
To go back at my original question, a foreign investor looking to potentially moved to the us for a few years. How to I structure my investment in order not to be liable on portfolio interest if I stay more then 180 days in the us but I do not take money out of the investment.Can I set up a trust or any legal entity ( that I am the beneficiary) that will allow me to defer the portfolio interest .
Customer reply replied 4 months ago
To go back at my original question, a foreign investor looking to potentially moved to the us for a few years. How to I structure my investment in order not to be liable on portfolio interest if I stay more then 180 days in the us but I do not take money out of the investment.Can I set up a trust or any legal entity ( that I am the beneficiary) that will allow me to defer the portfolio interest .
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 4 months ago

Once you meet the substantial presence test you would become a resident alien. As a resident alien you would be subject to the same tax laws as a U.S. Citizen. If you form a C-Corporation it would be a separate entity from you. The C-Corporation would be responsible for paying taxes on the taxable income that it earns. You would only pay taxes on the dividends that you would receive. If you did not receive any taxes, then you would not be responsible for any taxes.

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Customer reply replied 4 months ago
In your precedent answer you sayed :
"You would still only file 1 tax return, and individual return. You would be able to reduce the gain on the rental activity by 2.5% of the purchase price of the assets (up to 20% of the net rental income). "
For example a 10million property in a building.
- how do I know the percentage of capital allocated to land ?
lets assume 30% for example. I can depreciate the real estate over 27.5 years. or about 2.5% per year ?
if I get 250k annual rent how much of it I can deferred thanks to depreciation.
THanks
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