There are important US tax considerations in connection with acquiring real estate in the United States, particularly if you are not a resident of the United States for US tax purposes (a "Non-US Person").  Below are some of the more important considerations that you should bear in mind with respect to your acquisition and ownership of the US real estate.  This does not constitute specific tax advice and we strongly recommend that you consult legal counsel to design and implement an appropriate structure. 

Direct Ownership versus Ownership Through a “Structure.”

As a general matter, it is not advisable for a Non-US Person to own US real estate individually in his or her own name.  Rather, the Non-US Person should establish a non-US company (corporation or partnership) or a trust “structure” to own the real estate.  The primary reason for this is the US estate tax.  If a Non-US Person owns US real estate in his or her own name, the US estate tax will be imposed-- currently, at rates of up to 45% -- on the value of the real estate at the time of the individual’s death.  For example, if a Non-US Person dies owning US real estate worth $3 million in his or her own name, an estate tax of approximately $1.3 million will be imposed upon the Non-US Person's death.  This exposure to US estate tax can be minimized or completely eliminated if the US real estate is owned by a properly structured non-US company or trust structure, rather than directly by the Non-US Person .  Another benefit of owning real estate through a structure is that in certain cases the Non-US Person could avoid having to reveal his or her identity in tax returns and other filings with the IRS; instead, the tax returns and filings would be in the name of the company or trust.

US Federal Income Tax on Sale of Real Estate

In general, a Non-US Person who sells US real estate (whether US or non-US) will be subject to US federal income tax on the gain from the sale (with rates up to 35% plus potential state income taxes).  If, however, the US real estate is not “inventory property” or property held for sale to customers in the ordinary course of a trade or business, the gain from the sale may qualify for beneficial long-term capital gain rates of no more than 15% if the property was held by the taxpayer for more than a year prior to the sale.  Certain of the structures that may be used by Non-US Person to own US real estate would allow for 15% long-term capital gain rates while others would not. Furthermore, in many cases the ownership of US real estate can be structured so that the proceeds of the sale can be remitted back to Spain with no additional US federal income tax.

US Federal Withholding Tax on Sale of Real Estate

In general, if a Non-US Person sells US real estate, the buyer (whether US or non-US) is required to withhold and remit to the IRS 10% of the purchase price.  The amount that is withheld can be used by the Non-US Person as a credit against his US federal income tax liability on the sale of the real estate.  If the Non-US Person’s tax liability on the gain from the sale is less than 10% of the purchase price, it may be possible to obtain a “withholding certificate” from the IRS that would minimize or reduce the obligatory withholding.  Furthermore, certain of the structures that may be used by Non-US Persons to own US real estate involve having the real estate held by a US entity which, in turn, is owned by a non-US entity.  With proper structuring, this type of structure can avoid the 10% withholding requirement because the sale will be made by US entity, rather than by a Non-US Person. 

There are a number of different types of legal structures to address these tax issues and determine the most appropriate structure given your own particular objectives.  We would be pleased to refer you to our international tax counsel in the United States if you require some assistance. 

Tax Advice Disclosure:  To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Code or promoting, marketing or recommending to another party any matters addressed herein.

Source: Greenberg-Traurig