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July 20, 2018 - Phil Hodgen

Assign a Purchase Contract to an LLC and Why It Works

Nonresidents often show up and sign contracts to buy U.S. real estate in their own names. Then, before the sale is complete, they set up a holding structure. They transfer the purchase contract to the holding structure, and the purchase is complete.

Hey presto.

As I wrote a few weeks ago, transferring a purchase contract from a nonresident individual to a holding structure is a “disposition” of U.S. real estate. The result?

  • Paperwork. Until proven otherwise, the nonresident individual must file a U.S. tax return to report the “disposition” of a “U.S. real property interest”, even though self-evidently there is no capital gain.
... continue reading
Friday Edition
June 22, 2018 - Phil Hodgen

Form 8832, Community Property, and Foreign Business Entities

I received an email from Scott, a good friend who, well, does taxes in Mexico.

He had a question about an American couple in Mexico who are setting up a S de RL (Sociedad de Responsabilidad Limitada), which is similar to a U.S. LLC. One of the features of this type of entity is that it must have two owners. H and W. How convenient.

Mexico has community property laws for married couples, and Scott tells me that this S de RL is a community property asset of H and W.

Will this entity (S de RL) be treated as a corporation, partnership, or disregarded entity for U.S.... continue reading

Friday Edition
June 8, 2018 - Phil Hodgen

Community Property for Americans Married to Nonresidents

Let’s look at the taxation of income earned by spouses living in community property jurisdictions. When a U.S. person is married to a nonresident alien, the tax rules are different.

The normal rules: two U.S. taxpayers

The normal rules are described in IRS Publication 555.1 Where spouses are subject to community property rules and they file separately, community income is split equally between the two spouses. The community property jurisdiction might be California. Or it might be any one of a number of countries outside the United States.

Different rules for a nonresident alien spouse

When one of the spouses is a nonresident alien, the rules are different.... continue reading

Friday Edition
May 25, 2018 - Phil Hodgen

Build Your Holding Structure Before You Sign a Purchase Contract

Hello from Singapore by way of Jakarta, and welcome to the Friday Edition. It’s all alt-country1 and international tax here, folks.

Go fire up Ribbon of Highway by Christy Hays on Ye Olde YouTube (or here on Spotify) then sit back and give this a read.

Build Your Holding Structure Before You Sign a Purchase Contract

For our literary purposes, you are a nonresident and noncitizen of the United States. You sign a contract to buy U.S. real estate, then think of tax planning and come to see me.

You decide on some kind of holding structure to own the real estate.... continue reading

Friday Edition
May 11, 2018 - Phil Hodgen

Withholding when Nonresidents Own U.S. Rental Real Estate

Proving the Obvious

In a quick email exchange I had with Susan Brown Otto (hi Susan) we touched on a topic that deserves attention. The topic is not terribly difficult, but its existence points to a meta problem.

Susan’s question/comment was about the non-requirement of withholding that is required when nonresidents own U.S. rental real estate . . . sometimes. It’s counterintuitive, because the IRS loves withholding.

So often in tax law there is an answer that you know, intuitively, but you can’t put your finger on exactly why the answer is true. This is dangerous territory for tax advisors. I have done this: blurt out an answer only to find out my memory was faulty.... continue reading

Friday Edition