Investing in Florida Real Estate as a Foreigner? Not a problem but few things to know beforehand…
Just like any American citizen, foreign nationals are given same opportunity to purchase Florida real estate for their personal use. These properties can be bought in their own names, or the name of a corporation; just like any American citizen. However, specific rules under the Foreign Investment in Real Property Act (FIRPTA) must be followed when these foreign nationals bid for any United States property on the U.S soil. In accordance with the FIRPTA policy, profits realized from the sale of any United States property by a foreign national can be taxed.
However, any of these three exceptions would let off any taxation;
- If the seller has secured a withholding certificate from the IRS,
- If the property is less than $300,000,
- If the seller happens to be a non-resident foreigner with a tax identification number.
But if none of these apply, the buyer is mandated to pay 15% of the sale price as a tax to the IRS. It used to be 10% not so long ago.
According to Section 1031 of the IRS Code, foreign nationals are qualified to put off capital gains taxes in the United States by investing in another property. This might be a bit complicated if not correctly handled; hence, it is advisable that they seek the services of an experienced Florida real estate legal adviser.
Investment and Rental Property
Following the International Investment and Trade in Services Survey Act, foreign nationals buying significant amount of real estate in the United States must ensure they seek approval from the U.S Department of Commerce. The details of all the parties involved (buyers, sellers, and owners of above 50% interest) must be included and submitted to this department. Properties occupying over 200 acres of land or with a selling price of above 1 million dollars would require more detailed personal and reporting details.
On the other hand, foreign nationals buying Florida real estate as leased properties are mandated to pay U.S taxes on such properties. Foreign landlords can be taxed to pay 30% of gross rental receipts, or to pay regular U.S income tax rates on net income realized from the property by filing a Form 4224 with the IRS.
FIRPTA Privileges for Foreign National Real Estate Investors
Foreign nationals can buy a real estate in the United States for their personal use without the involvement of any United States governmental agency. But when it comes to selling any property in the U.S soil, foreign nationals must abide by some rules in accordance with the Foreign Investment in Real Property Act (FIRPTA). According to the FIRPTA, funds received from the disposal of any United States property by a foreigner are liable to be subjected to an IRS withholding. 15% of the total sale price must be withheld by the either the buyer, or the buyer’s closing agent which will be paid as a withholding.
Nevertheless, there are a couple of exceptions from the FIRPTA withholding. These include:
- If the buyer buys the property for his/her personal residential area with the selling price being lower than $300,000. The buyer is required to live in the property for about 50% of the time for the first two years after purchase.
- If the seller retrieves a statement from the IRS proving that he/she: has enough funds to pay the tax; is entitled to a reduced withholding amount; is exempted from the tax; or has arranged with the IRS to pay the tax.
- If the seller is not a foreigner with a U.S taxpayer identification number to show proof.
- If a U.S corporate entity, owns the sold property.
In any of the above mentioned situations, the IRS may grant the seller a withholding certificate that will lower the withholding. This is obtainable if the tax withholding amount is greater than the actual gain.
The state of Florida is one of the most sought after states foreign investors tend to invest in. This is because the state provides higher profits on properties and its real estate properties are more secured compared to those found in their various home nation as well as other states in the United States.
However, any foreign national seeking to invest in the United States real estate market should endeavor to have a thorough understanding of the real estate market. Though there are slight variations with regards to real estate variations in each state, there are certain regulations that holds true throughout the country.
Here are a couple of things to note:
- Listings: It’s pretty easy to navigate through the United States real estate industry unlike most parts of the world. One can easily have a grasp of the real estate regulations guiding a particular state in the United States, by surfing the internet.
- Real estate agent commissions: In a good number of countries, the buyer has to pay a certain amount of money (commission) to the real estate agent, while in the United States, the reverse is the case (the commission is paid by the seller).
- Real estate agent licensing: The requirements needed for the licensing of real estate brokers vary from state to state in the United States. This is to ensure that these agents have met the minimum educational level needed to become a real estate broker.
It is also imperative for foreign nationals to have a thorough understanding of the currency exchange rates, international banking laws, the United States federal and state taxes, as well as wire transfers relating to real estate investment by foreign nationals.
Principles of Investing in Florida Real Estates as a Foreign National
There are lots of principles a foreign national should know before investing in Florida real estate. We would be sharing some of essential things foreign nationals should know when it comes to investing in Florida real estate.
Firstly, it is important that you ask your attorney and accountant to explain in details your reporting and taxation requirements, as well as the numerous ways you could minimize your tax liability.
Secondly, it is also important they explain elaborately the various regulations as well as tax implications associated to certain types of properties that may be taxed at a higher rate. For instance in the Florida and the United States in general, foreign nationals in possession of rental properties have the option of choosing to pay their taxes by paying 30% of gross rental receipts or to pay the regular U.S income tax on their net income.
According to FIRPTA regulations, profits gained from the disposal of a U.S property by a foreigner is subject to taxation. However, any of these three exceptions will liberate it from taxation.
- if the seller is in possession of a tax identification number and resides in Florida
- If the seller has a withholding certificate issued by the IRS,
- If the cost price is below $300,000 and the buyer intends using it as a personal residential area at least 50% of the time for the next two years.
However, if none of these exemptions comes into play, the buyer will pay 15% of the sale price to the IRS.
There are lots of ways foreign nationals could secure financing of real estate investments in Florida. They could get from lenders, banks as well as other financial organizations. In addition to these, they can put off capital gains taxes using the 1031 exchange.
If you are interested to invest in Real Estate in Tampa Bay, Florida, call us to discuss your goals. We are professional team who helped many investors from all over the worlds to invest in Tampa Bay Real Estate. Either you are looking for Real Estate services, property management or financing, we are here to help you achieving your financial goals through investment in Tamp Bay Real Estate. We strongly believe that Tampa Bay is still undervalued and some areas didn’t recover from Real Estate Crush. Needless to say, Tampa Bay, Florida has some undervalued properties. It works great for investors not only from ROI perspective on cash flow but also equity growth.