Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: What are the advantages for international buyers of using a U.S. trust to purchase U.S. real estate?
A: Depending on the nature of the trust, it may help you avoid corporate tax rates, which are higher than individual rates, said Edward Mermelstein, managing partner of the Manhattan law firm of Rheem, Bell & Mermelstein.
In addition, said Eric Dorsch, a New York attorney with Kozusko Harris Duncan, any gain on the sale of a property owned through a U.S. trust will likely be eligible for the lower preferred capital gains tax rate, unlike properties owned through a foreign corporation. In many situations, he said, it is possible to structure the terms of the trust so that some or all family members may use the property without paying rent.
More:Do International Real Estate Investors Have to Pay U.S. Taxes After A Sale?
Both experts agreed that a trust, if properly structured, would provide protection against U.S. estate taxes upon the death of the owner. However, added Mr. Dorsch, the estate would not receive a basis step-up—a readjustment of the property to market value—putting survivors at a disadvantage if they wanted to sell.
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