Canadian selling U.S. real estate to American

[Lucy44]

What is the name of your state? Seller resides in Canada. Land in AZ.

I recently purchased vacant lots at tax sale in AZ. I put 1/2 in the name of my sister-in-law, and 1/2 in mine.(thinking this would be easier, in the event that she would be selling them to Canadians) S-I-L lives in Canada, and has no SSN or other status in the U.S. I have a buyer in AZ wanting to purchase 2 lots which happen to be in her name. Buyers are using a title Co., which has added an unexpected twist-my fault! I don't know if or how I could use my own tax info. (I have a small business in MN and tax I.D.#) so that my S-I-L would not have to file in the U.S. as a result of this land sale. Can we form a partnership or the like, before the sale of the properties? Does the fact that her name is on these deeds, preclude me from using my own tax information? I'd kinda like to keep her out of this mess, as she was essentially only acting as my agent.

 

[Snipes5]

You could probably have her gift it back to you. However, you will want to wait for Abezon's reply on this one.

Snipes

 

[abezon]

Did I hear my name?

Possible ways to go:
1. SIL gifts the lots to you & you sell them, then gift the money to her. You'll have to pay taxes on the net gain & file a gift tax return if you give her over $11,000. Possible problem if the IRS determines that this was a tax-motivated transaction (which it is, duh!) -- they could impose fraud penalties on you & on her. She will have to include the gain on her Canadian return.

2. SIL sells the land. The title co will send 10% of the gross to the IRS & she will have to file a US nonresident return and pay alternative minimum tax. She will file a form W-7 with the return or with the title company's tax payment so the IRS issues her a tax ID number. Again, she includes the gain on her Canadian return. This time, since she actually paid taxes, she gets to claim a foreign tax credit on the T1.
Be sure her preparer does the return multiple ways to see how to maximize her refund.

3. Is she married to a US citizen or does she have a child who is a US citizen? Different possibilities open up.

4. A partnership is a bigger problem, since you'd have foreign partners. Don't fo there.

 

[Lucy44]

Thanks Abezon & Snipes

After speaking with the IRS and reading your replies, I think I'll have my S-I-L give the properties to me. (I actually bought them but put some in her name) I'm wondering which would be better for transferring ownership. Quit Claim, or Warranty deed? No money will have changed hands. Will a warranty deed imply that it was a "sale?" Will the IRS expect me to pay taxes on the value of these properties, even though to financial transaction has taken place? And if I may ask one more question: Can I put every parcel (10 of them) on the same deed? They are currently on separate deeds. I'd rather not pay $140. to have them recorded separately again.
Thanks !

 

[abezon]

You can't put them on the same deed unless you merge the parcels to one. Expensive & counterproductive. A quitclaim deed should be fine. Visit the recorder's office -- they probably have blanks, and will definitely give you a sheet with the requirements for recording (margins, size, etc).

With a warranty deed, the seller warrants (guarantees) that she owns the property & has not encumbered it. With a quit claim deed, the seller sells any interest she may have in the property. I could quit claim the Brooklyn bridge to you & you'd have no ownership, since I have no ownership to transfer.