Higher Returns for Informed Investors
It is old news that until recently, the U.S. real estate market has been experiencing a serious slump. Not surprisingly, Israeli investors see an opportunity. Savvy investors are fully cognizant of the legal and tax aspects of their choices. Their consideration of the decision to invest demands thorough analysis of the laws and taxes in the U.S. and Israel, as well as the interaction between the two.
Investors face such issues as state restrictions on foreign ownership of real estate, capital gains tax scenarios, income tax dilemmas and the possible application of the infamous U.S. estate tax. Foreign investors need to listen carefully and be well-informed: the U.S. Estate Tax applies to any assets located in the U.S. no matter the citizenship of the individual who owns them.
Persons who do not have U.S. citizenship are subject to the U.S. Estate Tax on all assets they own that are located in the U.S. at quite a high rate. If the total value of all of the assets owned by a non-U.S. citizen exceeds $60,000, the aggregate tax rate on the remaining value is approximately 45% of the value of the asset.
This often comes as a surprise to the uninformed foreign investor – the U.S. Estate Tax is assessed on the value of the asset rather than on the income earned or increase in the value of the asset. Hence, the average non-U.S. citizen investor in the U.S. will pass $60,000 tax free to his heirs and less than 50% of the value of his remaining U.S. assets, after all taxes and fees are paid.
For example, Israeli citizen Kobi does not have U.S. citizenship. He may be a native Israeli or an Oleh from anywhere other than the U.S. Kobi purchases real estate located in the U.S. for $100,000. He anticipates that when the market bounces back, he will own a piece of property valued at $300,000 or more. If Kobi owns this real estate in his own name at the time of his death and it is in fact valued at $300,000 at that time, his estate will owe approximately $108,000 in U.S. estate taxes, leaving $192,000, a profit of only $92,000 to his heirs instead of a profit of $200,000 which with proper planning could ALL be inherited by Kobi’s heirs.
The Beauty of the U.S. Estate Tax is That it Can Be Completely Eliminated With Proper Planning
Adequate planning will not merely reduce the U.S. estate tax liability, but eliminate it altogether for foreign investors and U.S. citizens alike. From the example above, if Kobi consulted the appropriate professionals and structured his purchase differently, his estate would not owe any U.S. estate taxes upon his death.
“The U.S. Estate Tax is voluntary” according to Kristina R. Haymes, Esquire. Non-U.S. citizens can plan accordingly and salvage their investments. There is an upfront cost to planning, of either setting up a trust, a company or similar vehicles. However, the important consideration for most investors is the big picture. Elihu Stone, JD of Park Avenue Securities, explains that he helps his clients focus on what they are trying to accomplish. If investors are clear as to what they are seeking by making this investment, the array of structures available to them facilitates arriving at their goals.
Investors also thoroughly weigh income tax considerations as income taxation can be a straight 30% for certain foreign entities. The puzzle then becomes pitting the income tax liability against the potential estate tax liability. A consideration given significant weight here is the length of time that the investor intends to hold the asset in mind.
A dangerous pitfall for many non-U.S. citizen investors in the U.S. can be a lack of accurate advice or receiving inaccurate advice. With the rise in global investing in the past several decades, foreign countries have experienced a boom in overseas U.S. estate planning professionals. Investors are strongly urged to ascertain a professional’s particular expertise in U.S. tax and estate planning so as to maximize their investments.
Experienced US Estate Planning Attorney Felicia M. Seaton understands what your estate plan should include to safeguard your family’s best interests while enduring difficult times. She can help you formulate & implement a comprehensive plan to give you peace of mind. Contact her today click here or call 0526182582/US: 3028923336