Are there any taxes owed when a resident or non-resident alien dies owning property in the US?
Full Question:
Answer:
Yes, it is quite possible that there will be taxes owed to the US for property owned in the US by a foreign person who is deceased.
Although there are no restrictions placed on foreigners regarding the purchase of U.S. real estate, there are numerous tax implications that could result in significant loss if not planned for in advance. There are also various reporting requirements for foreign sellers and investors accompanied by significant penalties for failure to comply. When planning is done in advance of the closing, however, many of these tax consequences may be avoided.
Although U.S. persons are entitled to a $2 million exemption from estate tax, a non US domiciliary is only entitled to a $60,000 exemption. Furthermore, if the property is mortgaged on a recourse basis, the mortgage balance is not fully deductible in calculating the taxable estate. The federal estate tax rates are graduated up to 45% and if the property is situated in New York or New Jersey, there is also a state estate tax imposed. The tax is imposed on all U.S. situs property owned by the non U.S. person at his/her death. U.S. situs property includes U.S. real estate as well as shares of stock issued by corporations formed in the U.S. and tangible personal property located in the U.S. (e.g., artwork located in the condominium). Yet all of these taxes can be avoided by careful structuring 01 the transaction.
We would recommend that the heirs of the foreign property owner discuss the matter with a local US tax attorney.
