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What would be the best way to transfer real estate (100% owned and paid for; no mortgage or debts) by a non-US citizen and non US resident to his child that is US citizen and living in the US from a tax perspective?

  • How much is the property worth, roughly? – Peter K. Dec 1 '15 at 0:03
  • From the original purchase price or from the fair market value (e.g now) ? – user3716806 Dec 1 '15 at 1:08
  • Both, but more interested in fair market value. – Peter K. Dec 1 '15 at 1:09
  • ~700K for the fair market value and 390K for the original purchase price – user3716806 Dec 1 '15 at 1:16
  • How old is the child? – mhoran_psprep Dec 1 '15 at 11:30
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There are three options:

  1. Non-resident sells to the resident - no complications there, as long as it is an arms-length transaction (i.e.: market price). Recipient has his own basis (same as stepped up basis in #3).

  2. Non-resident gifts to the resident (or sells at a discount, which is a gift) - then a gift tax is in order. There's the $14K exemption, but no lifetime exemption, so essentially gift tax will be paid. Recipient keeps the basis.

  3. Non-resident leaves as inheritance to the resident on death - there's $65K exclusion (IIRC, numbers change each year) and estate taxes will be paid. Recipient gets a stepped-up basis.

More details here (amounts are a bit outdated in the article).

Ignoring other considerations, investing in having your foreigner parent become US resident may save you quite a lot in taxes.

  • Thanks for all of the clarification, seems like #2 seems preferable, but how much would be the gift tax (roughly) based on the home value listed above ? – user3716806 Dec 1 '15 at 18:26
  • @user3716806 I believe the top gift tax rate is 40%, same as estate tax. That would make #3 actually better, if you're willing to wait (exemption is larger). – littleadv Dec 2 '15 at 3:28

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