Tuesday, May 02, 2017

​How Trump’s tax plan could boost foreign investments in Dallas real estate

The outline of President Donald Trump’s proposed tax cuts released last week could provide a major break to foreign investors in local real estate through the elimination of the so-called “death tax.”

Only a very small fraction of U.S. citizens’ estates are subject to tax. Anyone leaving less than $5.49 million is exempt, and that goes up to about $11 million for couples.
But foreigners will be taxed on any holdings in the U.S. exceeding $60,000 when they die.

This has led to a lot of gymnastics from tax advisers, whose clients live abroad but invest in stateside real estate. They’ve usually had to structure these purchases through a foreign corporation whose shares are not subject to the U.S. estate tax.
“Absolutely, I would expect it to go up,” William Hornberger, partner at Jackson Walker, said of foreign investment in local real estate if Trump’s proposal is approved.

The Dallas-Fort Worth area was one of the 20 most attractive areas for foreign real estate investors last year, according to KPMG. The firm JLL estimated earlier this year that about $10 billion in commercial real estate here is bought by foreign investors.

But local tax advisers aren’t telling their clients to make big changes just yet. And Trump’s tax plan lacks specifics, such whether foreign investors would still have their estate holdings in the U.S. taxed if its repealed for citizens here.

“No family will have to pay the death tax,” according to the tax plan. “You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.”

Eddie Geraghty, partner at M. White and Associates, said there is “obviously going to be a lot of push back” on how to pay for the plan. The Congressional Budget Office estimates the estate tax would send about $271 billion to the Treasury’s coffers over the next 10 years alone, though 99.9 percent of local estates are exempt from it.

“Can I tell a client to take a decision based on this? Not really,” Geraghty said. “It’s hard to advise based on this.”

The administration claims the economy would be able to grow fast enough to generate the revenue needed to pay for the cuts themselves.

The biggest headline from the plan was cutting the corporate tax rate to 15 percent from 35 percent.

Jon Prior/Dallas Business Journal.