At Sundin & Fish, PLC, we work with a variety of foreign real estate investors, including those from Switzerland. As US real estate investment continues to rise and develop, investors need to understand certain tax issues. Not only does this include the issue of annual filing requirements, but it concerns FIRPTA tax withholdings, as well.
If you are not a citizen of the United States, specific rules apply to determine if you are a resident alien or a nonresident alien for tax purposes. Generally, you are considered a nonresident alien if you did not reside in the US during any part of the tax year.
Most of our Swiss clients are labeled nonresident aliens, since they do not reside in the United States, even temporarily. A majority of these investors must still file US federal and state tax returns as a result of their real estate holdings. However, clients should be aware of a few specific ways they may be able to elect to be taxes, as well as a few pitfalls that should be taken into account before purchasing US real estate.
There are three main US tax issues that need to be addressed: (1) estate tax; (2) gift tax; and (3) income tax. Some of these issues are straightforward, but depending on the tax situation, there may be entity structures that you can implement to make your investments more tax efficient and address any future considerations. With proper planning you can alleviate many of the concerns and sleep easy at night.
In addition to these US tax issue concerns, Swiss investors should also have a good understanding of how these investments will impact their home country tax situation. Many countries will provide a tax credit for any taxes you pay to the United States, but they often tax any profits from these investments, as well. Make sure that you engage a knowledgeable and experienced tax professional Switzerland who understands the issues you face.
It must also be understood that even though the IRS has standard or default classifications that govern how nonresident aliens are taxed, the US has tax treaties with many countries that can, in some situations, significantly lower your tax liability. Understanding these complex tax treaties will require the insight of a tax professional.
With the proper tax planning, many Swiss investors find themselves being taxed similarly to United States citizens. These tax rates start at 10% and go up to 39.6%. Since rental real estate will generate depreciation deductions and often a passive loss, many investors end up paying the lowest rates (if they even pay tax at all). Upon the sale of a property, the US tax code allows individuals to pay at a favorable long-term capital gains rate of 15% (subject to certain conditions).
Swiss investors may also encounter state tax issues in addition to their federal tax concerns. Of our 50 states, 43 of them impose income taxes, and many states may impose additional taxes or filing requirements, further complicating the tax filing process.
Navigating US tax law and filing applicable returns may be a challenging process for investors, but at Sundin & Fish, PLC, we work vigorously to simplify this process for our Swiss clients. We are ready to review your situation and discuss tax planning strategies.
Make sure a professional who is able to provide important education on the subject of US investment is on your side. Call us today at 480-361-9400.
We work with worldwide real estate investors, including (but not limited to) investors from Canada, France, Israel, Australia, Germany, Netherlands, United Kingdom, Sweden, Russia, Japan, China, and Switzerland.