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October 13, 2017 - Phil Hodgen

How Should I Own My U.S. Real Estate?

How I Think About Real Estate Holding Structures

Foreign investors in U.S. real estate always have the same question:

How should I own the real estate that I am buying in the United States?

This is how I think when I think about that question. If you sit down in my conference room and talk to me, our conversation will follow this outline.

The Primary Risk: Estate Tax

For human investors, the primary risk is estate tax. (Ignore corporate investors and pension plans).

Estate tax is imposed on the value of U.S. assets owned by nonresidents when they die. The tax rate is 40%, and for all practical purposes the real estate asset is fully taxable.... continue reading

Friday Edition
September 29, 2017 - Phil Hodgen

What “Abode” Means for the Foreign Earned Income Exclusion

The foreign earned income exclusion is a marvelous thing for Americans abroad. It eliminates income tax entirely on a fairly large chunk of income.

Americans pay tax to the USA on all of their income, no matter where they are on the planet, and where they earn their income.

The United States is unlike (almost) every other country by having this method of taxation. Other countries have an immensely practical and sane approach to income tax: “If you live here, you pay tax here. If you don’t live here, you don’t pay tax here.”

To soften the blow, the foreign earned income exclusion says Americans living abroad will not pay income tax on up to $102,100 of earned income (salary, self-employment) in 2017.... continue reading

Friday Edition
September 1, 2017 - Phil Hodgen

When a Foreign Trust Files FinCEN Form 114

The Problem

This week, I want to highlight a risk: when an unanticipated FinCEN Form 114 filing requirement might apply to a trust.

There is a weird situation where a foreign trust (as defined for income tax purposes) may be required to file FinCEN Form 114. (FinCEN Form 114 is how you tell the U.S. government about your foreign financial accounts).

It’s weird, but intentional.

Short Attention Span Summary

Does the trust look like a normal domestic trust but get taxed as a foreign trust? Watch out. You have a potential FinCEN Form 114 filing requirement.

Look Domestic, Taxed Foreign

There are good reasons to create trusts that look like domestic trusts but are taxed as foreign trusts.... continue reading

Friday Edition
August 18, 2017 - Phil Hodgen

Yes, A Married Person Can Claim Head of Household Filing Status

Summary

“Head of Household” filing status is desirable–it can save you some tax.

Proving you qualify for head of household status is not easy.

Among other things, head of household filing status is for unmarried taxpayers only.

But it is possible for U.S. citizens (or resident aliens) who are married to nonresident aliens to qualify for head of household filing status. All you need is to maintain a household, and a dependent who is not the nonresident alien spouse.

The Requirements

The requirements for claiming head of household status are:

  1. Be unmarried at the close of the tax year.2
  2. Not be a surviving spouse.
... continue reading
Friday Edition
August 4, 2017 - Phil Hodgen

Nonresident Real Estate Investors, Zero Income, Mandatory Tax Return Filing

This discussion is inspired by an email I received from A.A., a CPA living and working outside the United States.1

Nonresident Real Estate Investors, Zero Income, and U.S. Tax Return Filing Requirements

When are nonresidents required to file U.S. income tax returns? Let’s ignore the obvious situation–when they earn income in the United States.

Let’s look instead at a vastly more interesting question. When must a nonresident individual file a U.S. income tax return (Form 1040NR) even when there is zero income earned in the United States?

Because yes, nonresidents with zero income must sometimes file U.S. income tax returns.... continue reading

Friday Edition