Concerns for Foreign Nationals Living or Doing Business in the United States

     Many of our clients are Foreign nationals who travel to or purchase property in the Colorado high country (how can you blame them).  Any foreign citizen traveling to the United States on an occasional basis who owns real estate in the United States need to take care that they do not become subject to payment of taxes other than the capital gains tax.  Foreigner will become subject to the United States income tax if they meet the “substantial presence” test, which is sometimes also known as the 183 day test.  Thus, a foreign national will become subject to payment of income tax if they are in the U.S. for 183 days in the current year or if they are in the U.S. during any three-year period for a number of days equal to 183 days but calculated according to the following formula (X being a full day actually present):

  • X  in the current year, plus
  • 1/3 X in the last year, plus
  • 1/6 X in the year before last

    For example, assume someone is present in the U.S. 120 days each year.  That would equal 120 days for the current year, 40 days for last year and 20 days for the year before or a total of 180 days.   They would not be subject to payment of income tax.  Foreign citizens also need to be aware of potential liability for payment of any future United States estate tax.  Anyone who owns real estate in his or her own name may be liable for payment of any future estate tax upon death.  Even if the property is placed in the name of a corporation or limited liability company, any future estate tax may apply.  This discussion relates only to the tax on ordinary income and any future estate tax.  Whenever real estate is sold at a profit, the capital gains tax will have to be paid.  Like with any tax matter, Foreign nationals need always to consult a tax professional before making any decisions based on tax liability.