If a foreign person is moving to the U.S., they should consider the tax benefits of selling their foreign home before they move. They may be able to exclude up to $250,000 (or $500,000 if married) of the profit from the sale of their home from U.S. taxes. This applies even if the home is located outside of the U.S. To take advantage of this benefit, they need to have owned and lived in the home for at least two years before the sale. It’s also important to plan their estate before they move to minimize their tax exposure in the U.S. Once they become a resident and domiciled in the U.S., they will be subject to worldwide taxation. One way for a foreign person to buy a house in the U.S. is to set up a special trust before moving here. The trust is funded with certain types of property to avoid extra taxes. The trust then buys the house, and the foreign person’s spouse can live in it. The trust can also give the spouse some control over the house. In simple terms, if someone sets up a trust for their spouse to live in, they should be able to live there as well without it affecting the trust’s tax status. Even if the person setting up the trust is a non-resident alien but later becomes a resident, the trust can still be considered a grantor trust, which has tax benefits. This is important if the trust holds the couple’s main home, because it means they could exclude up to $500,000 of profit when they sell it. As long as the trust is set up correctly, the settlor’s spouse should be able to receive income or money from the trust to pay taxes. If someone wants to give property to a trust, they need to make sure it’s not considered community property. If it is, both spouses will be seen as owners of the property and the trust might not be tax-compliant. Also, if a non-US citizen wants to buy a house in the US, they might need to establish residency for tax purposes. If you’re an international employee with a G-4 visa in the US, you may still be considered a non-resident alien for income taxes, even if you plan to stay in the US permanently. You could also be considered a resident for purposes of estate taxes, but there are ways to use a special trust to buy property and avoid certain taxes. However, you need to be careful with the rules to make sure you don’t lose the tax benefits. In summary, we have discussed how the exclusion interacts with U.S. tax and estate planning principles. We looked at different scenarios where the exclusion can be helpful. It’s important to note that there may be other useful scenarios as well. William H. Newton III is a lawyer and author who has written a two-volume book on international income tax and estate planning. He has been teaching law for over 30 years and has written many articles on international tax and estate planning.
Source: https://www.floridabar.org/the-florida-bar-journal/pre-immigration-tax-and-estate-planning-utilization-of-code-121-exclusion/
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