Gift Tax for Non-Residents who Transfer U.S. Property Situs

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Nonresident Gift of U.S. Real Estate Tax Implications

Nonresident Gift of U.S. Real Estate Tax Implications

Nonresident Gift of U.S. Real Estate Tax Implications

When it comes to the IRS international tax gifting rules of foreign persons to US persons, it can get very complicated — depending on the specific facts and circumstances of the transaction. In a common situation, a US person (Lawful Permanent Resident) has foreign national, non-resident parents who live abroad. As is often the case, either the US resident reached a life milestone (such as graduating from University) or received a foreign inheritance which includes a large gift from a foreign person such as money and investments. As a result, the US person has to file a Form 3520 to report the foreign person’s gift to the US government. With most gifts, there is no income tax implication –– and typically no gift tax implication when a foreign person gives a foreign gift to a US person. But what happens in a situation in which a nonresident alien gives the gift of US real estate? Unfortunately, this can result in an immediate gift tax implication.

Nonresident Gift of U.S. Real Estate

US persons enjoy a +$12,000,000 gift and estate tax exclusion. Thus, if a US person was going to gift a $1 million home, there is no issue — and all that is required is for the US person to submit an IRS Form 709 is filed to report to gift (presuming the person giving the gift has not used up their full exclusion amount). But, in the exact same situation in which a foreign person owns US real estate worth $1 million and wants to gift that real estate, they only receive a $15,000 exemption – and then the gift gets hit with US gift tax. In this type of situation in which a foreign person gives the gift of US real estate valued at $1 million (after subtracting $60,000) they are left with a nearly $400,000 gift tax bill – and they may also owe foreign taxes abroad on the gift.

Gift Tax Rules for Non-Residents

With Gift Tax from non-residents who give the Gift of US Situs, there is just a $15,000 exclusion ($60,000 with estate tax)

As provided by code:

      • In the case of the estate of every nonresident not a citizen of the United States if that part of the gross estate which is situated in the United States exceeds $60,000, the executor shall make a return with respect to the estate tax imposed by subtitle B.

709-Instructions – Nonresidents Not Citizens of the United States

      • Nonresidents not citizens of the United States are subject to gift and GST taxes for gifts of tangible property situated in the United States.

      • A person is considered a nonresident not a citizen of the United States if he or she, at the time the gift is made, (1) was not a citizen of the United States and did not reside there, or (2) was domiciled in a U.S. possession and acquired citizenship solely by reason of birth or residence in the possession.

Under certain circumstances, they are also subject to gift and GST taxes for gifts of intangible property. See section 2501(a).

      • If you are a nonresident not a citizen of the United States who made a gift subject to gift tax, you must file a gift tax return when any of the following apply.

      • You gave any gifts of future interests.

      • Your gifts of present interests to any donee other than your spouse total more than $15,000.

      • Your outright gifts to your spouse who is not a U.S. citizen total more than $159,000.

26 USC 2501(a)

(a)Taxable transfers

      • General rule

        • A tax, computed as provided in section 2502, is hereby imposed for each calendar year on the transfer of property by gift during such calendar year by any individual resident or nonresident

      • Transfers of intangible property

          • Except as provided in paragraph (3), paragraph (1) shall not apply to the transfer of intangible property by a nonresident not a citizen of the United States.

26 USC 2502

      • Computation of tax

        • The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of—

          • a tentative tax, computed under section 2001(c), on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over

          • a tentative tax, computed under such section, on the aggregate sum of the taxable gifts for each of the preceding calendar periods.

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