By Bethany Bouw
With as much trepidation as Dorothy and her new friends experienced in The Wizard of Oz, we should approach the subject of US real property interests (USRPI), non-resident aliens (NRAs), and estates the same way. It is very important to determine how the USRPI is held and if there are any advisable elections. Please make sure to seek your accounting professional’s assistance.
USRPI is an interest in real property in the US or the Virgin Islands. It can also include personal property that is connected with the use of real property. USRPIs can also be a non-creditor interest in a domestic corporation.
Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) is a tax act that governs the taxation related to real property and foreign investors. It addresses withholding on sales and transfers of real property and entities that hold real property.
Situs refers to the actual or deemed physical location. In relation to FIRPTA and USRPI, it refers to the physical location of the real property.
Five Things to remember:
- Where there are USRPI and alien ownership be on the lookout for FIRPTA implications… Generally, disposing of USRPI by foreign transferors can be subject to income tax withholding that the transferee is to withhold.
- Who is liable for withholding on USRPI dispositions under FIRPTA? The transferee is generally the responsible party for withholding. Generally, if withholding was required, the transferee may be held liable.
- NRAs can have US estate tax on specific assets. Property that has its situs in the US is generally includable in the estate of an NRA. This includes USRPI amongst other properties. An NRA holding USRPI needs to consider both the estate tax rules (tax threshold is lower for NRAs) and the FIRPTA withholding when planning around their USRPI. Due to the complexity of estate rules for NRAs, NRAs should seek out a tax advisor who is familiar with the estate taxation of NRAs.
- Talk with your tax preparer about USRPI structuring. Be sure to discuss the method of ownership of USRPI with your tax advisor. Not structuring your USRPI ownership properly can create huge problems when it comes time to address estate taxation. Strategies in structuring the ownership can reduce estate taxation and potentially defer the withholding on the USRPI disposition.
- Other Considerations. It is best to contact your tax advisor regarding USRPI well prior to disposition so that a plan can be made. There are exceptions to consider, you may want to consider the buyer based on their intended usage, and it may be good to look at the ownership structure.
Ryan & Wetmore has assisted clients with their FIRPTA planning and USRPI dispositions over the years. With good counsel and proper planning, you can move forward confidently and with the same courage the cowardly lion found. We would be happy to assist you if you have concerns about your US real property interests.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings. For questions or concerns regarding your international accounts and assets, click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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