Weakness of the US Dollar combined with a significant drop in real estate prices in certain parts of the US, has prompted many non-US persons to acquire real-estate properties in the US.

But what would constitute an ideal ownership structure, considering the potential tax exposure.

Depended on the circumstances, probably there are 3 types of taxation, to which one could be exposed, when owning real-estate in the USA.

1. Income Tax, Rental income received from U.S. real estate owned by a non-U.S. resident is generally taxed at a 30% withholding tax. To mitigate this tax, one can file to treat the rental income as income effectively connected with the conduct of a U.S. trade or business. This EIC election could provide for certain tax deductions, such as property taxes, interest, maintenance costs and depreciation.

2. Capital Gain Tax, which is levied on the gain received with the sale of the real-estate.
The present maximum federal long term capital gains tax rate for taxpayers that are individuals, trusts, estates and partnerships which have owned U.S. real estate for more than one year has been increased from 15% to 20% for 2011.

3. US Estate Tax. The U.S. imposes a federal tax on the taxable estate of a decedent who was not a U.S. citizen or domiciliary for transfers of real estate upon death. In 2010 there was no U.S. estate tax and as of January 1, 2011 the U.S. estate tax was to have been reinstated in accordance with the 2001 situation; an estate tax rate of 55% and an exemption of $1 million. However, as a result of negotiation to preserve tax cuts, an amendment was agreed to for the U.S. estate tax to impose a rate of 35% on estates larger than 5 million dollars U.S. for an individual and 10 million dollars U.S. for couples for the next two years. For non-U.S. residents, the exemption is pro-rated based on the value of their U.S. estate over their world-wide estate value.

Some tax advantages may be gained by individuals who purchase property in Florida through a corporate structure. Thereafter any subsequent transfer of the property could be effected by transferring the shares in the (offshore) holding company leaving the title to the property in Florida unchanged in the hands of a Florida property owning company.

Some of these advantages may include:

1. AVOIDANCE OF U.S. ESTATE TAX - In the event of the death of the owner of the property, estate tax would be payable in the US irrespective of the tax residency of the owner. But as a Company has perpetual life (never-ending), estate tax is eliminated.

2. AVOIDANCE OF U.S. CAPITAL GAINS TAX - Capital gains tax in the state of Florida is applicable on re-sale of the property and would be charged at a rate of 20%, although this can increase if the property is held less than one year. If, instead of selling the property, the shares of the holding company owning the Florida property company are transferred liability to this tax would be avoided.

3. SAME DAY COMPLETION - As local legal requirements do not have to be met because sale is effected simply by transfer of the shares, any subsequent re-sale could take place very quickly and effected anywhere in the world.

4. EASE OF SALE - Transferring shares in a holding company avoids the lengthy and protracted procedures which are necessary to register a fresh title in Florida. The sale and purchase can thus be effected much more quickly, easily and cheaply.

5. PROPERTY FINANCE FACILITY - The shares of a holding company can be used to secure a loan for the purchase of the property. Commonly, the shares are charged to the bank in return for a loan equal to a proportion of the value of the property.

6. PRIVACY, CONFIDENTIALITY AND ASSET PROTECTION - these are other advantages, which could be gained, when a company ownership structure is used.

The information in this newsletter reflects prevailing conditions and our views as of this date, which is accordingly subject to change. In preparing this newsletter we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources.


For more information:

Email us at: rudsel.lucas@sadekya.com



Sadekya Fiduciary Partners.
Rudsel. J. Lucas TEP, Managing Director
The Triangle Office Building, Hoogstraat 20-22
P.O. Box 4750
Curacao, Netherlands Antilles
Telephone: 599 9 4652698

rudsel.lucas@sadekya.com