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May a Foreign Investor invest in a corporation and avoid paying corporate and individual tax on the gain from the sale of U.S. real estate?

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Richard Lehman, JD, LLM
Yes, once a corporation, Foreign or U.S., has sold all of its U.S. real estate holding and paid the single tax at the operating level of the corporation, the corporation may liquidate and distribute its assets to its foreign shareholders free of tax.

Further, a Foreign Investor who wants to use just a U.S. Corporation to own the U.S. real estate investment will receive the same benefit from liquidating that corporation. The “Second Tax” that usually occurs when cash is distributed from a corporation’s profits can be eliminated.

All of this is accomplished by a single exception in the internal revenue code that governs corporations that invest in United States real estate. Once a corporation that invests in U.S. real estate, (whether it’s a foreign corporation or a domestic corporation), pays all of its U.S. taxes on all the real estate that it owns in the United States, it can liquidate and it can distribute all of the cash that it has from the sale of those assets free of tax to the investor.
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