Thomas C. Roberge & Company

STRUCTURING OWNERSHIP OF U.S. REAL ESTATE

AT TIME OF PURCHASE CAN GENERATE

SUBSTANTIAL TAX SAVINGS

July 2, 2007

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

The structuring of ownership at the time of purchase of U.S. real estate by a foreign investor is an important event since it can have a dramatic impact on the income and inheritance tax consequences.

From an income and capital gains tax perspective, the individual form of ownership is usually more desirable. This is because the maximum capital gains tax rate to individuals is only about 15% compared to a maximum federal and Florida corporation maximum tax rate of about 38.5%. This is a potential savings of more than 23%!

However, direct individual ownership of U.S. assets (including real estate) by foreign individuals creates exposure to U.S. inheritance tax. Examples of other U.S. assets are securities, boats, fine art works, etc. The tax is levied on the fair market value of those assets if the foreign person dies while owning the property.

Foreigners do not receive the same $2 million exemption that U.S. decedents are allowed. They only receive an exemption of $60,000. As an example of how significant this tax can be, if the value at time of death of the U.S. assets is $500,000, the potential inheritance tax is $142,800. One million dollars of U.S. assets could generate an inheritance tax as high as $332,800! Two million dollars of U.S. assets could generate an inheritance tax as high as $767,800. A big caveat here is that joint ownership of these assets does not necessarily reduce one’s exposure. Also, most types of trusts (whether foreign or domestic) do not avoid one’s exposure to the inheritance tax.

There are strategies and techniques that can reduce and even eliminate the financial risk presented by the U.S. inheritance tax associated with individual ownership of U.S. real estate by foreign individuals and, at the same time, preserve the benefit of the 15% capital gains tax rate. We have considerable experience in this type of planning. You are welcome to contact us at (941) 952-5848 or (727) 822-9393 if you would like to discuss how we can benefit you in these matters.

Internal Revenue Service Circular 230 Disclosure – You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.