Thomas C. Roberge & Company

QUITCLAIMING OF U.S. REAL ESTATE

BY FOREIGN PERSONS

CAN CREATE UNWANTED TAX RESULTS

March 26, 2008

Carol Doerr, CPA

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

Contact: Info@RobergeCo.com

We are receiving numerous phone calls about quitclaiming U.S. real estate from foreign property owners for various reasons.

A quitclaim of U.S. real estate by a foreign person is a taxable gift under the Internal Revenue Code. For 2008, a nonresident alien donor only receives a $12,000 annual gift tax exclusion ($128,000 exclusion if the transfer is to one’s spouse). Such gift is not eligible for gift splitting nor is the unified credit available.

The taxable amount of the gift is generally the greater of the cost or fair market value of the property less the amount of debt against the property and less the annual gift tax exclusion.

Here’s how it works. Assume that John Stanford, a citizen and resident of foreign country X, purchased a Florida condominium in 2002 for $825,000. The property is presently worth $1 million and has a $238,000 mortgage. John wants to give the property to his daughter, Mercedes. The bank has agreed that the mortgage can be transferred to Mercedes.

The result is that John has made a taxable gift of $750,000, thereby generating a gift tax liability of $248,300! The $750,000 taxable gift is the difference between the $1 million fair market value of the property less the sum of the $238,000 mortgage and the $12,000 annual gift tax exclusion.

There are strategies available for minimizing the impact of such a transfer. However, they require planning and execution prior to the transfer. We have been involved in the planning in several of these situations for our foreign clients. Feel free to contact us (727) 822-9393 or (941) 952-5848 if you are contemplating such a transfer and are faced with this dilemma.

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.