As an experienced real estate attorney in Miami, I take some exception to the April 4 article How secret offshore money helps fuel Miami’s luxury real-estate boom.
Although this article is more even-handed and objective than others, it’s unfair to use the term “shell corporation” to suggest that having a corporation or other entity to own real estate is somehow improper.
In fact, any foreign investor that purchases real estate that is valued over $1 million should take title with a United States or foreign entity, and should have at least one foreign entity in the chain of title.
The reason is simple: The U.S. tax system is different for individuals who aren’t considered to be U.S. residents.
If a foreign individual dies owning U.S. property in his own name, there is only a $60,000 exemption contrasted to $5.4 million for U.S. citizens.
However, if the individual instead has taken title to real estate that, in turn, is owned by a foreign corporation, then the individual’s interest in the foreign corporation isn’t considered a U.S. real property interest, and as such, is not subject to estate tax.
This is significant, as the current estate tax for a foreigner owning a $1 million property will be approximately $350,000 while if the foreigner takes title with a foreign corporation there will be no estate (death) tax.
Thus, any foreigner investor spending $1 million or more on U.S. real estate, whether for personal or business use, should use one or more entities for their holdings.
Although the recent Financial Crimes Enforcement Network targeting order focuses on Miami-Dade cash transactions that are $1 million or more, FinCen doesn’t have jurisdiction to include wire transfers in their order.
But stay tuned, as there is a growing public perception that U.S. entities should have more transparency, particularly entities that own real estate.
James A. Marx,