As reported by the Guardian here:
http://www.guardian.co.uk/business/2012/jun/15/us-property-attracts-foreign-buyers
A combination of the weak dollar and the collapse in the US housing market has resulted in US property starting to look more and more appealing to foreign buyers, the majority of whom apparently come from Canada, Mexico, China and the UK. Four in ten homebuyers apparently want to live in the US full-time, whilst the others were purchasing holiday homes or time-shares.
I was surprised to see at the end of the article a mention that many buyers knew to stay out of the US for longer than 6 months each year “for tax reasons”, but do you think that they all really understand the implications of FATCA and the FBAR, especially the 40% of homebuyers looking to move to the US?
Also, my understanding of the “Substantial Presence Test” is that staying up to six months each year is much too long and could still trap most of these homebuyers into becoming “US persons”. Here are the guidelines from the IRS’s own website:
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
- All the days you were present in the current year, and
- 1/3 of the days you were present in the first year before the current year, and
- 1/6 of the days you were present in the second year before the current year.
If the above is met, then the person is considered to be “US resident for tax purposes”. There are exemptions for foreign diplomatic staff, students, professional athletes and trainees temporarily in the US. No exemption for holiday home-buyers.
How many people do you think are aware of this fact, not to mention the FBAR pitfalls that come attached to this? Let us also not forget the new US government push to attract wealthy investors from overseas to purchase property in the US and be given a path to residency and citizenship, sponsored by no less than Schumer himself. Conspiracy? Absolute indifference so long as money continues to flow towards the US? Or maybe a bit of both of the above and total willful blindness to the damage that the US is doing to its image overseas and the goodwill that it is losing?
Initially OVDI looked for whales. But OVDI got minnows and they liked FBAR fundraiser. It turned out FBAR fundraiser is more lucrative. Many of the minnows are recent immigrants having assets in their nations and unaware of obscure FBAR obligation. Now they want to diversify in to actively set trap for unsuspecting immigrants. If it is a business, it is great business plan.
Virtually never mentioned in “Buy a holiday home in the US now!” articles and sales pitches is FIRPTA. That’s yet another “special” US tax law for foreigners that taxes any capital gains they make on US real estate as if ordinary US income. It’s also (surprise!) yet another unilateral US tax treaty override, although most treaties have now been updated to accommodate it. The usual remedy is a holding company, but a depressingly large number of people buy direct through ignorance.
Even worse may be US estate tax on US real estate held by a foreigner — this can start at a mere $60k of US assets. It’s virtually certain these days that a US “holiday home” is going to be worth more than that.
Oh, and that photograph at the start of the Grauniad article really sells the place, doesn’t it?!
*This latest flood must be the ones lured in by what they think are easy deals. The administration should be aware that a large potential of investors indeed know to stay out of the USA—a simple example is of a younger Mexican entreprenour (with wealthy family) on a recent flight. She knew that becoming a US person would be toxic. Same with international retirees–they are missing out of today’s Florida population for some reason—that they know about the crazy taxation.
*In Miami, according to press reports, 23% of the real estate transactions currently are with Brazilians who are purchasing vacation homes for themselves and their extended families who come here to shop and spend a few days of vacation and then head back home. These are almost 100% cash transactions. They often bring their dollars in the form of cash. Beach property in Miami costs half or less than what it costs in Rio de Janeiro. One of my friends from my days of living in Brazil 35-40 years ago has a son who bought a condo. He and other familiy members use it when they fly up to Miami for a few days.
I suspect that they are not aware of the 31 days per year maximum presence which makes them “residents for tax purposes.”
The basic residence test described above is correct. If it helps, an easy general rule to apply is that you’re “safe” if you’re in the US for no more than 120 days in each year. If you go over 120 (but still under six months) in one year, you can still avoid US residency, but may then need to be under (or well under) 120 in the two years before and two years after.
The question of how to hold US real estate is a little more complex though. It is true that holding through a non-US corporation clearly avoids the US estate tax; but there is a cost on sale. You can sell the stock of the non-US corporation tax-free if you can get someone to buy it, but I’m not sure how many buyers will be agreeable. And even if they are agreeable, they may impose a steep discount for the built-in tax problem that would arise if/when they needed the non-US corporation to sell the underlying property.
Alternatively, you can just have the non-US corporation sell the underlying property, but corporations do not get the benefit of individual long-term capital gains rates. If you own and sell the property directly, you get the benefit of those reduced rates. There’s more to say, but there’s a small person here with lots of my DNA that needs my assistance!
*My Florida experience is a bit tainted, in a popular retiree area inland, which I guess wouldn’t draw an international crowd.
There seems to be a mix of the unknowing souls mentioned, but with a large number of folks outside the US who know of the venom in the USA and have already decided to keep their money out.
President Obama gives conditional amenity to illegal immigrants, if they satisfy certain conditions: http://www.reuters.com/article/2012/06/15/us-usa-immigration-idUSBRE85E0VA20120615
I support this kind of conditional amnesty to illegal immigrants.
I hope he gives conditional amnesty for US citizens living abroad for a decade or more from filing taxes, where if the taxes in those countries are generally higher than the taxes in the USA. Nobody moves to high tax nations to evade taxes.
Also gives conditional amnesty for dual-citizens who have little or no US sourced income for decades by offering simplified process to relinquish US citizenship. If all the income is generated in a high tax country, the US should not claim any more taxes.
josephinemoulds@gmail.com
I sent her an email with this link…
@Bharat
I support that also, but sadly, it is not an amnesty or an immunity, and as we have learned discretion can cut both ways. OVDI was discretionary action.
Why only temporary work visa for 2 years? I fear for the excited child wanting to take advantage of this. I would wonder if he signs up, given how our bureaucracy and regs works, will he inadvertently dob in his parents, Napolitano promises not withstanding. Would you trust them?
I do think after the initial euphoria and given some time for reflection, some will be worried. Less may take up the offer than they think. As with everything coming out of government, the devil is in the details, and I hope this helps out these children, but I fear some “fbar type” trap. I hope I am wrong.
Finally, what happens after 2 years, do the Republicans just round them up on a Bus and drive them to the boarder? They will have all their addresses by then.
BTW, I tweeted this…in response to Obama tweet.
https://twitter.com/FATCA_Fallout/status/213786977521254400
*I have always wondered if the immigration check in was tracked or not–in and out.
Sometimes they click in some info to their computers as you enter.
Who checks when you leave?
When I re-enter the EU, I don’t always remember getting a stamp or entry of my info into their computers.
@ Bharat
This discussion on PBS last night, might interest you. The politics of it all.
Here is some info on those athletes working in the US:
http://www.irs.gov/businesses/small/international/article/0,,id=106060,00.html
@Just Me
“As with everything coming out of government, the devil is in the details, and I hope this helps out these children, but I fear some “fbar type” trap. I hope I am wrong.”
That was my reaction too, especially when they are using their typical deceptive titles — the DREAM Act. It could be another bombing for “humanitarian” reasons type of thing. They want the young and productive (educated, no criminal record) and they could well be setting these kids up for a lifetime of US tax slavery and even using them to hunt down and deport their excluded parents and grandparents. They’ve made it clear this is only a 2 year at a time work permit, not a path to citizenship. The carpet could well be yanked out if Obama gets re-elected and will certainly be if Romney is elected. Meanwhile these kids are in the sinister system as a result of this DREAM Act. I simply do not trust the USA with its Weapons of Mass Deception. I hope these young Hispanics are getting wise advice from someone. Dream on kiddies, just be sure you check the details.
But back to the topic … I’m going to be doing my best to warn my Canadian cousins about the pitfalls of becoming entangled with the USA — no matter how tempting 6 months of sunshine at snow time may be to them. I am my own best example of the consequences of USA entanglement with my tardy return of my kryptonite card.
@ Mark Twain
“I have always wondered if the immigration check in was tracked or not–in and out.”
I also wonder how much data they have collected at the border crossings and for how long they have collected it. I think they may have not done anything too extensive in this regard until after 9/11 but I don’t know for sure.
@Just Me: It is sad. I agree with you. The amnesty after 2 years may be used to catch them and deport them along with their families. It puts honest students who identify themselves would be deported, while real criminals with criminal records continue to hide and stay in the USA.
It might be administrated like OVDI after election. We know ignorance and in action worked so far ex-pats and dual-citizens (having no money in the USA). The innocent dual-citizens are punished by using bait and switch.
BIG DATA is tracking you and your residency overstays!
Canada and the United States announce Phase I pilot project to enhance border security at land ports of entry
Ottawa, Ontario, September 28, 2012 — The Canada Border Services Agency (CBSA) and the Department of Homeland Security (DHS) announced today that, effective September 30, 2012, both agencies will begin the Phase I pilot of the Entry/Exit initiative as outlined in the Beyond the Border Action Plan.
http://www.cbsa-asfc.gc.ca/media/release-communique/2012/2012-09-28b-eng.html
BIG DATA is tracking you and your residency overstays! — bubblebustin
January 30, 2013 at 9:12 pm.
Here’s a summary of their plans for the coming years.
Beyond the Border Action Plan
The Beyond the Border Declaration articulates a perimeter approach to security in which both countries work together to address threats at the earliest point possible – within, at, and away from our borders
Addressing Threats Early
Improved our understanding of each country’s legal, policy and operational approaches to information sharing for national security purposes, as well as identified and addressed areas for improvement in the broader bilateral information sharing relationship;
Canada and the United States already have similar visa and document requirements, advance passenger information requirements. Building on these similarities, our countries are collaborating to enhance screening methodologies and programs … including … the implementation of systematic biographic and biometric information sharing on third-country nationals; sharing information on those who have been removed from either country for criminal reasons; and sharing entry data at the shared land border such that entry to one country constitutes the exit data from the other. Improved information sharing assists officials on both sides to make better informed decisions, to prevent unlawful entries into either country.
notifications regarding the arrival of individuals on U.S. security watchlists; Shared requirements for biometric standards; an agreement to support the systematic and automated sharing of biographic and biometric visa and immigration information on third-country nationals; record of entry into one country so that it can be considered the record of exit from the other for third-country nationals, permanent residents of Canada, and U.S. lawful permanent residents.
These efforts aim to address challenges relating to outdated physical infrastructure, border congestion, unpredictable crossings, and duplicative efforts; a new preclearance agreement for the land, rail, and marine modes, as well as an update to the existing preclearance agreement for the air mode; Began converting the data requirements of all participating government departments and agencies to electronic form; best practices and considerations for land border traffic management in the event of an emergency; Established binational working groups to prevent, mitigate, prepare for, respond to, and recover from Chemical, Biological, Radiological, Nuclear and Explosives (CBRNE) events, and have developed work plans and intend … binational training and exercises.
Integrated Cross-Border Law Enforcement
specially trained and designated officers work together in our shared waterways and effectively remove the international maritime boundary as a barrier to law enforcement; a disaster or health threat in either country may affect the other and require multi-jurisdictional and cross-border coordination. The measures below are intended to help facilitate the movement of emergency responders and other medical personnel in either direction across our shared border;
Critical Infrastructure and Cyber Security
Initiated a joint entry/exit pilot project at the land border, starting with third-country nationals and permanent residents, whereby the record of entry into one country is shared and becomes the record of exit from the other country;
While significant progress has been made over the past year, our work is not yet done. Several initiatives including the harmonization of trusted trader programs, the full implementation of an entry/exit program at the land border, the negotiation of a preclearance agreement for the land, rail, and marine modes and an update to the existing preclearance agreement for the air mode are underway.
Moving Forward
Beyond the Border Executive Steering Committee (ESC) comprised of senior officials from both countries, continues to help guide the work of the implementing departments and agencies. In particular, the ESC is expected to lead efforts to achieve outstanding items that have not yet been implemented due to (legal and operational) challenges that have arisen. One example includes the deployment of the Integrated Cross-Border Law Enforcement pilot projects, intended to build upon … and enhance cross-border law enforcement cooperation. We remain committed to implementing all of the initiatives of the Beyond the Border Action Plan, and we steadfastly seek to resolve outstanding challenges in 2013. Our work is not yet done. Indeed, the Action Plan includes deliverables due in 2013, 2014, and 2015 that we are to report on in subsequent annual reports. Key future initiatives include … making significant infrastructure investments at our key land border crossings, fully implementing an entry/exit program at the land border, expanding preclearance operations to the land, rail, and marine domains, and an update to the existing preclearance agreement for the air mode.
http://actionplan.gc.ca/en/page/bbg-tpf/2012-beyond-border-implementation-report
@bubblebustin, and @msd;
And presumably, we will see even closer Canadian-US cooperation in other respects, building on our already cosy and neighbourly relationship http://www.cbc.ca/news/politics/story/2012/06/01/pol-un-report-torture-canada-milewski.html
Apparently, we should be reassured, because Ambassador Jacobson feels the pain of those on the no-fly lists (and those subjected to rendition?);
………….”The U.S. ambassador to Canada understands the frustration of
cross-border travellers who’ve been ensnared in security restrictions
since the 9-11 terrorist attacks.”…..”I have been stopped and (told), ‘We’re sorry Mr. Jacobson but we need
more information, we can’t get you on the plane,”‘…..
“This happened once and they got it sorted out — and then it happened again, not too much later.”…..
…….”Jacobson said he thinks criticism that the perimeter security
negotiations have been secretive is “very unfair.” He noted that there
have been numerous public consultations on both sides of the border
already and there will be more before anything is finalized.
“The reason we are doing all this consultation and outreach is
because this thing is not going to be successful unless it has the
support of the Canadian people and the support of the American people……”
“I have a very high degree of confidence that the rules in the
United States and the way they are enforced today are quite protective
of individual rights and individual liberties.
“I’m not going to sit here and say bad things about other
administrations but I know a lot about this administration and I know a
lot about the values of the president and the values of the people who
enforce these laws in the United States now. ..
“And I can assure you that they are as concerned about individual liberties and privacy (as Canadians).” http://www.ctvnews.ca/u-s-ambassador-to-canada-twice-caught-by-no-fly-list-1.691600#ixzz2JWZoqXtV
So, when do Canadian libraries start the automatic reporting of the reading and borrowing habits of duals, or ‘foreign nationals’ to US homeland security? http://www.ala.org/offices/oif/ifissues/usapatriotact http://www.ala.org/offices/oif/ifissues/usapatriotactlibrary . Riffing on DATCA, FATCA, and GATCA, will we call it LATCA? Library Accounts Trolled (for) Compliance Assurance?
We (and the UK) already gave our (Canadian) census data to a US defense contractor, Lockheed Martin.
http://www.thestar.com/news/gta/2011/05/10/porter_why_the_2011_census_calls_for_some_civil_disobedience.html
http://www.guardian.co.uk/uk/2011/mar/18/lockheed-martin-targeted-census-protesters
@bubblebustin, @msd; and @Badger…
The global government trend of the future. A force of Nature. Hard for anyone to stop it. It is the technological era, with changes happening exponentially. Surveillance too. Every move you make recorded in the Big DATA server warehouse system somewhere to be used as they see fit. That is the Orwellian future. Hopefully administered by incompetent bureaucrats who can’t make sense of what they have. 🙂