Foreign Investment Guide

[Riley Kuranishi]

Hi BP!

I have some foreign investors that are looking to invest in some real estate in Washington, would someone be able to provide me some insight as to how they would accomplish this and the tax implication they might have should they want to purchase more property in the future?

Their first purchase would be cash so would all they need to buy be that they form a US LLC and transfer funds into that LLC?

Any help is appreciated! 

[Paul Sundin]

Riley - 

There are several things they will need to consider.  They will need to get a U.S. ITIN.  They of course need to consider tax implications. The three main US tax issues that foreign investors need to be aware of are: (1) income tax; (2) estate tax; and (3) gift tax.

Many foreign investors will find themselves being assessed tax at the same rates as US individuals. These rates begin at 10% and go up to the highest rate of 39.6%. Rental real estate will often generate depreciation expense and other direct expenses, so most investors will only pay rates at the lowest level of 10% (if they pay tax at all). The US tax code also has a very favorable long-term capital gains rate of 15% (subject to certain income) that may apply upon the sale or disposition of the property.

In addition to federal taxes, investors will also have state taxes to consider. The US has of course 50 states, but only 43 have a state income tax. But some states impose a transfer tax and other assessments that can complicate the situation. Navigating state tax law and filing the applicable tax returns is certainly not easy.

I hope this helps.