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U.S. Property Tax: The Lull Earlier than The Storm? An Replace And Refresher – Tax Authorities

What’s the present state of play relating to U.S. property
tax, together with its influence on many Canadian tax residents and others
with U.S. connections?

First, an replace on some key tax charges and ideas for 2023

The lifetime exclusion quantity has elevated considerably attributable to
the rise within the inflation price to which it’s pegged, and for 2023
is now $12.92 M (USD), and for a married U.S. couple $25.84 M (USD)
mixed. This improve is greater than 7% from 2022, and if the
inflation price continues to be excessive, by 2025 at 5% the exclusion
quantity will probably be over $14.2 M (USD).

Nevertheless, the lifetime exclusion quantity is about to lower on
January 1, 2026 to $5M (USD), adjusted for inflation since 2011,
except laws is handed by the U.S. Congress.

There may be important uncertainty with regard to what the long run
exclusion quantity could also be, and in addition with regard to the way forward for U.S.
property tax, given the change in command of Congress on account of
the current mid-term elections and a presidential election in two

However for now, in 2023, there’s a lull and a few complacency.
Anticipate heightened uncertainty in 2024, and much more in 2025, as
the sundown provision described above efficient on December 31, 2025
grows nearer. Given the upper exclusion quantity that at the moment
exists, cautious consideration needs to be given by U.S. individuals who
are topic to U.S. property tax to make the most of it by making
items, whereas balancing towards different dangers.

In 2023, the annual exclusion quantity for making items has
elevated to $17,000 for a U.S. particular person, or for a married U.S.
couple, $34,000 mixed. For items from a U.S. citizen to a
non-U.S. citizen partner the annual exclusion quantity is $175,000
(USD). This annual exclusion is the quantity {that a} U.S. particular person can
give to every recipient annually with out paying any present tax or
utilizing a part of his or her lifetime exclusion quantity.

Given the big exclusion quantity that presently exists, few
estates within the U.S. pay any U.S. property tax. In 2021, solely 2,600
estates paid any U.S. property tax, which totalled about $18.4
billion out of complete U.S. federal tax income of greater than $4
trillion, and solely about 0.08% of individuals who died in 2020, which
counted for about 3.4 million in complete, have been topic to U.S. property

Whereas Democrats have proposed reductions within the exclusion quantity
for U.S. property tax to $3.5 M (USD) to deal with wealth inequality,
together with within the Biden administration’s failed 2022 proposals,
Republicans have proposed repealing it altogether.

How can U.S. property tax influence Canadian residents who usually are not
U.S. residents, inexperienced card holders or in any other case thought-about domiciled
within the U.S. for U.S. property tax functions?

In case you have U.S. situs property and whenever you die your worldwide
property is above the lifetime exclusion quantity [currently $12.92 M
(USD) as noted above], together with U.S. actual property, straight owned
shares of U.S. corporations (even when held in a registered account such
as a RRSP/RRIF or TFSA), or tangible private property situate in
the U.S., in addition to sure different property, you possibly can have U.S.
property tax publicity. It’s price noting that sure property which
it’s possible you’ll not assume are included in your worldwide property, in actual fact
are included resembling an curiosity in jointly-owned U.S. actual
property, topic to exclusions, insurance coverage insurance policies, and pursuits
in sure trusts.

There may be sure aid obtainable towards U.S. property tax,
together with beneath the Canada-US Tax Treaty for these whose worldwide
property exceed the U.S. lifetime exclusion quantity, in addition to a
fundamental basic exemption quantity of $60,000 (USD) which might cowl
U.S. situs property as much as that quantity. U.S. property tax charges start at
18%, and prime out at 40% as soon as U.S. situs property exceed $1M

The U.S. property tax regime impacts property planning and property
administration for many individuals, together with when you have youngsters who
are U.S. individuals who’ve U.S. property tax publicity on the
inheritance they obtain from you, are married to a U.S. partner,
are a Canadian citizen but additionally have U.S. citizenship, are
everlasting residents of the U.S., or have U.S. situs property.

Cross-border points could be difficult.

On March 23, 2023, our complimentary webinar “Navigating
the Cross-Border Freeway: A Roadmap for Canada-U.S. Property Planning
and Administration” will deal with plenty of difficult
subjects that come up for individuals who have cross-border connections,
together with planning choices to cut back U.S. property tax publicity.We
encourage our subscribers, their colleagues and mates to affix us
for this webinar and to register by utilizing the hyperlink under.—
Margaret O’Sullivan

WHEN: Thursday, March 23, 2023, at 11:00 a.m. EST to
12:00 midday

The content material of this text is meant to offer a basic
information to the subject material. Specialist recommendation needs to be sought
about your particular circumstances.


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