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Location, Location, Location

By October 13, 2011October 24th, 2018Estate Planning Blog, Robert Lamm

Robert Lamm

Location, I am told, is a huge factor in determining the value of real estate.  Turns out, location can play a big factor in your estate tax bill as well.

Under IRC §  2103, a nonresident, not a citizen of the United States, is subject to estate tax in the United States for property situated in the United States at the time of their death.  A good example of how this Code Section works is the acquisition of real estate.    It can cause an estate tax nightmare that one never anticipated.

Suppose someone from a country in South America, where there is no estate and gift tax treaty with the United States, purchases a vacation home in South Florida that they visit for two weeks out the year. If they die owning the home directly, the home is subject to inclusion in their gross estate under IRC §2103, as it is real property located in the United States.  This is still the case even if the bulk of their assets are located elsewhere and the only property that they own here is the home.   To make matters worse, a nonresident non-citizen does not have the same applicable credit as a United States Citizen or resident, and only the first $60,000 of the estate is exempt from tax.

The moral of the story is that if you are a nonresident non-citizen and you own real estate in the United States, you should not take title in your individual capacity and instead consider alternative forms of ownership.