Transfers of certain property, as described below, to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return is considered a transfer subject to gift tax. The tax applies whether or not the donor intends the transfer to be a gift. For example, if you sell something at less than its full market value or if you make an interest-free or reduced-interest loan, you may be making a gift.
If you are a nonresident not a citizen of the United States who made a gift subject to U.S. gift tax, you must file a gift tax return (Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return) when any of the following apply:
- You gave any gifts of future interests.
- Your gifts of present interests to any donee other than your spouse total more than $16,000 (for 2022), $17,000 (for 2023), and $18,00 (for 2024).
- Your outright gifts to your spouse who is not a U.S. citizen total more than $164,000 (for 2022), $175,000 (for 2023), and $185,000 (for 2024).
Tangible gift
Donors who are nonresidents not citizens of the United States, are still subject to gift (and generation-skipping transfer (GST)) taxes for gifts made of real and tangible property situated in the United States.
Real property located in the United States has a US situs for US gift tax purposes. Thus, a non-resident alien's lifetime gift of US real property is subject to US gift tax. In addition to land and houses, condominium apartments are also considered real property and are subject to US gift tax.
Intangible gift
However, gifts of U.S.-situated intangible property are not subject to gift tax. Such intangibles including copyrights, patents, contract rights, stock of U.S. corporations, and debt obligations are not considered US situs for gift tax purposes. Thus, a non-resident alien may make a lifetime gift of US stock and not be subject to US gift tax.
For example, cash is considered tangible property. But if you convert the tangible asset - cash, into an intangible asset, for example, securities or treasury bills. Consequently, a gift of U.S. Treasury bills or other securities instead of cash by a nonresident alien would appear to be tax-free.
Form an LLC
If U.S. real property is owned through an LLC taxed as a corporation, according to tax code, the stock is a kind of intangible asset. Gift tax does not apply to the transfer of intangible property by a nonresident alien. Therefore, a foreigner's gift transfer of stock in a U.S. corporation is not subject to federal gift tax, even when the corporation owns U.S. real property. However, there may be exceptions depending on the specific situation.
However, it is uncertain whether the foreigner's U.S. gift tax situation can be improved if the U.S. real property is owned through an LLC taxed as a partnership because usually assets owned by a partnership are treated as owned proportionately by its partners. In this case, it is unclear whether the LLC interest can still receive the intangible asset treatment for gift tax purposes.
For further clarification, it is recommended to seek advice from a financial or tax professional to ensure accuracy and compliance with relevant laws and regulations.