“If I die, will the government take over my house?”
In this particular, the most common question: whether the government takes over the property in the event of the owner's death.
It's not like that.
The question arises due to the lack of knowledge of American laws, combined with the fact that taxation on inheritance has really high rates, to the point that, in many cases, it causes the sale of the inherited property precisely to pay the tax. Therefore, the question of the title often arises.
With the advent of a person's death, all of his assets must be transferred to his heirs. This transmission from the deceased to the heir is taxed as inheritance (or estate) tax.
In the United States, the tax covers, as a rule, all the assets that the deceased owns in this country. The main assets that are NOT taxed by inheritance tax, for the limited purposes of this text, are receipts arising from the deceased's life insurance and deposits in American banks, provided they are not connected with the conduct of commerce practiced in the United States.
Immovable property, however, is taxed. Hence the concern about the death of the foreign owner of the property and the taxation on said transmission.
In this case, the value of the property must be determined on the date of death.
From the value of the property, expenses with the deceased's funeral, administrative expenses (lawyers, fees and emoluments), debts that fall on the deceased's estate, mortgages and liens existing on the property on the date of death and losses uncompensated incurred in the organization of the estate, resulting from theft, theft, fire, among others.
This arrives at the basis for calculating the tax. Of this, the first $60,000 is tax-free. What exceeds, is taxed from 18%, with a maximum of 40%.
This taxation is progressive, that is, it increases as the value is higher. Let's take an example:
Property Value at Death: $300,000
Mortgage Balance at Death: ($200,000)
Despesas com funeral: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ ($5,000)
Despesas administrativas: _cc781905- 5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b -136bad5cf58d_ ($3,000)
Valor tributável bruto: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ $92,000
Isenção legal: _cc781905- 5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ ($60,000)
Valor tributável líquido: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ $32,000
Now see how the progressive tax table works on this $32,000:
Progressive Taxable Amount Tax Amount
$0 a $10,000 (18%) _cc781905-5cde -3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194 -bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194 -bb3b-136bad5cf58d_ $1,800
$10,000 a $20,000 (20%) _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ $2,000
$20,000 a $30,000 (22%) _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ $2,200
$30,000 a $32,000 (24%) _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b- 136bad5cf58d_ $480
Total do Imposto a Pagar: _cc781905-5cde-3194-bb3b- 136bad5cf58d_ _cc781905-5cde- $6,480
Now see another example with property of greater value and no mortgage.
Property Value at Death: $850,000
Saldo da Hipoteca no Falecimento: _cc781905-5cde-3194-bb3b- 136bad5cf58d_ ($0)
Despesas com funeral: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ ($5,000)
Despesas administrativas: _cc781905- 5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b -136bad5cf58d_ ($3,000)
Valor tributável bruto: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ $842,000
Isenção legal: _cc781905- 5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194-bb3b -136bad5cf58d_ _cc781905-5cde -3194-bb3b-136bad5cf58d_ ($60,000)
Valor tributável líquido: _cc781905 -5cde-3194-bb3b-136bad5cf58d_ _cc781905-5cde-3194- bb3b-136bad5cf58d_ $782,000
In this case, if we apply the progressive scale, the amount of tax to be collected is $168,280, which represents in net terms almost 20% of the value of the property.
Now some caveats.
Firstly, this article is extremely simplified and in no way replaces individual professional advice for each case.
Please note that we are referring to non-resident aliens of the United States. The law changes as a result of this and it is necessary to consider the figures of foreigners residing in the United States and American citizens as members of the equation “from deceased to heir”.
The change is so radical that in an equation between Americans (deceased and heir), the tax exemption rises to $5,340,000 (in 2014). Yes, that's right, over five million dollars, against $60,000 for non-resident aliens.
Another important consideration is that holding the property in the name of a US company does not eliminate the incidence of inheritance tax.
Stocks and other interests in US companies are considered taxable property upon the owner's death and therefore subject to tax.
In a company that owns only the property as equity, its shares will be evaluated according to the value of this property for tax purposes.
Finally, ownership of the property is also considered in this case. Real estate is commonly owned in co-ownership with other people and, depending on how it is, this also influences the tax calculation.
These are extremely general considerations on a complex subject full of variables. At no time should the reader rush to change the ownership of their properties without fully understanding the nuances of their specific situation, given the intricate legal curves existing in the legislation.
The topic should not be treated as a way to take advantage at any cost. It is about doing a prior tax planning to obtain the most favorable financial result possible, respecting the American legislation and bearing in mind that each individual situation is unique, and there is not a single solution that suits everyone.
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The information contained in this article constitutes mere generic legal information and should not be understood as legal advice for concrete and specific factual situations. If you need legal advice, always consult a lawyer who is licensed and a member of The Bar in the state where you reside.
About the author (www.waltersantos.com)
Lawyer in USA. Juris Doctor from the Barry University School of Law in Orlando, FL (2004). Member of the Florida Bar (2005). Member of the American Immigration Lawyers Association (AILA). Columnist for the B&B newspaper (2010 to 2014). Columnist for the Nossa Gente newspaper (2007 to 2009).
Lawyer in Brazil. Member of the OAB, São Paulo Section (1993). Master in State Law from the Pontifical Catholic University of São Paulo (2001). Bachelor of Laws from the Pontifical Catholic University of São Paulo (1992), where he worked as a teaching assistant in undergraduate (1995 to 1999) and lato sensu graduate courses (PUC/COGEAE, 1997 to 1999). Specialist in Tax Law at the University Extension Center, where he worked as a teaching assistant from 1997 to 1999. Lecturer in several courses and seminars on tax law, he is the author of the book “Taxation of Communication Services” (Cenofisco, 2004).
I return to the theme, especially with regard to foreigners who are not residents of the United States, as many people who live in Brazil have acquired real estate in the United States, either for their own family leisure or even to invest in the country. Contributing to this is the advantageous low value of properties (at least when compared to those practiced in Brazil), combined with the more than favorable exchange rate of the Real against the Dollar.
With the acquisition of the property, however, arise the tax obligations arising from the income that this property produces for its rent or capital gain for the future sale at a higher price than the acquisition.
The possibility that the owner of the property dies and the property is transferred to his heirs must also be considered, in which case the American inheritance tax is levied (transmission causa-mortis).