[WSBARP] Taking non resident alien spouse off title of real estate - tax issues

Fri Jan 15 09:15:39 PST 2021

Yes. If it is converted from CP to SP as TIC, only the decedent’s half would receive the first step up. But the SS still gets the $250K residence exemption for SS’s half, and the entire property would get the step up at the second death. It may not be a major concern. 

John J. Sullivan

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Kary Krismer
Sent: Friday, January 15, 2021 8:40 AM
To: wsbarp at lists.wsbarppt.com
Subject: Re: [WSBARP] Taking non resident alien spouse off title of real estate - tax issues

I've been thinking about my step up in basis concern, and I no longer think it's a concern.  If the other spouse gets the property the basis would be stepped up because they would inherit the entire property.  If anyone else gets the property, the basis would be stepped up for the same reason.  I think the concern would be converting the property from community property to tenants in common.  There my concern would be only half the property would get a step up in basis.

But of course, checking with a tax attorney would be prudent.  There may be other estate or income tax concerns.

Kary L. Krismer
206 723-2148

On 1/12/2021 9:42 PM, Kary Krismer wrote:

What I meant by raising FIRPTA was whether the couple was contemplating a future sale and thinking by doing a QCD beforehand they could avoid FIRPTA.  I'm not sure that future sale would give rise to FIRPTA withholding, but again I'm not sure it wouldn't either.  But I wasn't worried about FIRPTA on the gift.

As to the step up in basis my concern was that the step up would only apply to community property, not separate property.  Also a question I don't know the answer to.  In the back of my mind I seem to recall it applies to either type of property, but that's something I'd want to make sure of.

Kary L. Krismer
206 723-2148

On 1/12/2021 7:29 PM, John J. Sullivan wrote:

Good points.  

1. No FIRPTA withholding on gifts. No gain realized. 

https://www.irs.gov/individuals/international-taxpayers/exceptions-from-firpta-withholding

2. Yes. If NRA spouse died first there would be a step up in basis even though estate not subject to estate tax.  Perhaps she transfers her interest to a revocable trust for his benefit? Or somehow achieve whatever the objective is while not removing it from her gross estate?

https://hodgen.com/why-nonresident-decedents-get-step-up-basis-at-death/

Don’t forget to check any applicable treaty. 

John J. Sullivan

Sent from my iPhone

On Jan 12, 2021, at 7:15 PM, Kary Krismer  <mailto:Krismer at comcast.net> <Krismer at comcast.net> wrote:

I would take a step back, and if this is just about FIRPTA, find out if FIRPTA would even apply with a US Citizen still on title.  I sort of doubt it would since they would have a taxpayer to reach, but I don't know that.

And then I would think about the step up in basis on death of community property when a spouse passes away, and find out whether you'd be giving that away.  Without this transfer and a step up in basis there'd likely be little or no gain for several years, and even if FIRPTA applied any money taken would be paid back upon filing a return.  Note that step up in basis would apply whichever spouse dies first.

It may be the client is wishing to avoid a non-existent problem and creating a future liability.

Kary L. Krismer
206 723-2148

On 1/12/2021 6:22 PM, John J. Sullivan wrote:

If NRA wife gifts now to citizen husband, the unlimited marital deduction applies.  

I would specify it’s to create separate property and claim that REET exemption so if she dies her estate has no CP interest in US source property. 

John J. Sullivan

Sent from my iPhone

On Jan 12, 2021, at 3:42 PM, Lisa Chiang  <mailto:feesimple7 at gmail.com> <feesimple7 at gmail.com> wrote:

Hi all,

A silly question, as it's been awhile since I've dealt with this scenario, so want to be sure:

Client is U.S. citizen.  Wife used to hold a green card, which she gave up after they moved overseas a decade ago.  IRS deems her to be a non resident alien (NRA) for tax purposes.  Kids are also U.S. citizens (all minors currently).  

Real estate in WA state acquired as community property when they both lived and worked here.  

Client would like to take his wife off title of WA house (she's agreeable).  

Wondering about gift tax issues before we proceed.  (Will prepare QDOT for other liquid assets). Any thoughts or wisdom from the group is greatly appreciated.  

Kind regards, 

Lisa

-- 

Estate planning and settlement, trusts, real estate and probate

206.569.8838

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