Mansion Global

Tax Talk: Should I Purchase a New York Condo Through a Non-U.S. Corporation?

Foreign nationals must go the indirect route to avoid paying U.S. taxes

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CSA Images/Mod Art Collection/Getty Images
CSA Images/Mod Art Collection/Getty Images

Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week's question.

Q: I am not a U.S. citizen. A friend told me I should buy my New York condominium through a non-U.S. corporation. Is that the best structure to use?

A: Foreign nationals cannot buy condos directly through a non-U.S. corporation, said Edward Mermelstein, managing partner at the law firm of Rheem, Bell & Mermelstein in Manhattan. Rather, they must set up a U.S. entity that can then be owned by an off-shore corporation. This is considered the default structure for individuals who do not want to have to file U.S. tax returns.

Eric Dorsch, a New York attorney with Kozusko Harris Duncan, noted that a non-U.S. company—for example, a company in the British Virgin Islands that is treated as a corporation for U.S. tax purposes—can be a good structure for holding U.S. property.

More:Where to Live Well—and Save on Taxes—Around the World

There can be complications if the buyer intends to hold the property for personal use, Mr. Dorsch added. It might be advisable, he said, to pay rent to the company rather than claim direct ownership.

Any gain on the sale of U.S. real estate will likely be taxed at a higher rate if it is held through a company rather than owned outright through an LLC or in a trust. Proceeds from a sale will also likely be subject to Foreign Investment in Real Property Act (FIRPTA) withholding, Mr. Dorsch said, which does not increase the overall tax bill but can be time-consuming and expensive to comply with.

There are estate planning considerations as well. Mr. Mermelstein noted that U.S. real estate directly owned by a non-resident alien is subject to federal estate taxes and any state or local estate taxes upon the owner’s death. Owning property through a foreign company—once an appropriate U.S. entity has been set up—should ensure that it will not be subject to these levies, Mr. Dorsch added.

Email your questions to editors@mansionglobal.com. Check for answers weekly at www.mansionglobal.com.