David A. Altro and Shlomi Steve Levy recently co-authored an article which appeared on Advisor.ca and is appeared in the September 2014 edition of Advisor’s Edge magazine.
In the article, David and Shlomi explain the considerations and opportunities that Canadians should keep front of mind if they are investing in US real estate and what they need to know about the Foreign Investment in Real Property Tax Act (FIRPTA). Click here to view the article online or scroll down to read an excerpt from the piece.
Investing in U.S. Property
DAVID A. ALTRO & SHLOMI STEVE LEVY
Many foreigners have found great investment opportunities in the U.S. Though IRS rules for these clients are more restrictive, they still contain exceptions that offer relief.
Before 1980, foreign persons (non-residents, non-citizen individuals and non-U.S. corporations) were often exempt from tax on the disposition of U.S. real estate or any U.S. real property interest (USRPI), such as shares of a U.S. corporation holding U.S. real estate. Foreigners were only taxed in a few circumstances, including when they had Effectively Connected Income (ECI).
ECI is taxed at graduated tax rates, while non-effective income is taxed at a rate of 30% or lower, depending on treaties. In 1980, Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA) under section 1445 & ss. of the Internal Revenue Code (IRC). It came into effect the following year. FIRPTA meant major changes. IRC section 897 now viewed the disposition of U.S. real estate or any USRPI, including shares of U.S. corporations holding U.S. real estate, to be ECI and therefore taxable.
Please click here to read the rest of this article on the Advisor.ca website.