What are the Tax Implications of Non-US Citizens Transferring Real Estate in the United States?

 In Estate and Gift Taxes, Non-US Citizens

Question:

We are Canadians and we own condo in California where our daughter lives. We would like to transfer the property to our daughter. What is best way considering USA and Canadian taxes?

Photo by Hermes Rivera on Unsplash

Response:

I can’t tell you anything about Canadian taxes, but things actually get very complicated for gifts of property located in the United States by non-U.S. residents. All gifts are subject to a $15,000 annual exclusion ($30,000 for a husband and wife). Gifts above that amount must be reported. For U.S. citizens and U.S. residents, there’s an $11.4 million exclusion for taxable gifts (the same exclusion as for estate taxes), so for almost everyone it doesn’t matter if you make a taxable gift. However, that exclusion does not apply tonon-citizen residents of foreign countries. As a result, if you were to give the condo to your daughter, the value above $30,000 would be subject to a gift tax at rates starting at 18% and topping out at 40% on values above $1 million.

So, the best approach would be to give your daughter shares of the condo valued at $30,000 a year. If you gave one share before the end of this year and another right after January 1st, you could transfer $60,000 in value pretty quickly.

One caveat I should note is that Canada and the United States do have a tax treaty that I have not reviewed. It may or may not alter these rules.

The accounting firm, Deloitte, provides a good primer on these rules here: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-us-estate-and-gift-tax-rules-for-resident-and-nonresident-aliens.pdf

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