Welcome
to the Wiesenberg & Co. Certified Public Accountants foreign
property owner tax update.
A
method exists allowing the owner of a rental villa to sell their
original property and purchase another rental property without
paying any taxes. This newsletter discusses whether or not non-residents
can take advantage of this powerful tax strategy.
The
strategy referred to above is called a " 1031 like-kind exchange,"
named after Internal Revenue Code section 1031. Savvy domestic
investors use this tax saving formula extensively. This strategy
allows a seller to exchange the proceeds of their sale for a new
property. If the new property is of equal or greater value, no
immediate tax liability will be triggered.
There
are many rules that must be complied with to successfully navigate
this "exchange." The substitute property must be identified
within 45 days of the original sale, and sold within 180 days
of that original date. An entity, often referred as an accommodater,
may be appointed to hold the proceeds until it is used for the
new purchase. This intermediary can guide the investor through
the exact details of the transaction. A partial non-deferral of
taxes can occur where the property sold is of greater value than
the new property. In this case all proceeds directly utilized
for the new purchase will be reinvested tax-free while the excess
amount will be taxed.
In
most circumstances foreign investors can use this investment method.
US tax law in this situation tries to encourage foreign investment,
but at the same time keep non-residents on equal footing with
residents. Accordingly, non-residents can use this method as long
as the following three basic requirements are met. The United
States property has to be exchanged for another United States
property. The new property has to be taxable on its sale, and
the annual tax return has to be filed with form 8224 for the two
years following the exchange.
The
" 1031 like-kind exchange" is one of many situations
where taxes can be deferred. In a unified approach to encouraging
foreign investment, the IRS has established similar requirements
for many other tax deferral strategies. We will try and address
some of the other commonly applicable deferral strategies in upcoming
newsletters.
Reminder:
The deadline for non-residents to file tax returns is June 15th.
Extensions to this filing date can be requested.
Tax
tip of the day
If
structured correctly charitable contributions can help eliminate
a foreign- investors United States tax liability.
Please
contact us with any comments or questions
you may have.
(This
newsletter is designed to be of general interest. The specific
techniques and information discussed may not apply to you. Before
acting on any matter contained herein, consult with your professional
advisor.)
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