The Miami Association of Realtors ranked Brazilians as the “top foreign consumer searching Miami properties in May 2013”.   Source:  Miami Association of Realtors, The Miami Herald  Sunday, July 7, 2013. Next in line were Canada, Colombia and Venezuela.  What this equates to is a large number of foreigners investing in Miami Real Estate and depleting inventory of homes in South Florida.

While the majority of foreigners are smart enough to hire real estate lawyers to assist them with their purchases, far too many fail to do so and this failure to plan can result in costly mistakes.  So how do foreigners avoid the pitfalls of foreign investing in the United States?  First, it is important to understand who is considered a foreigner.  A foreigner is any person that is neither a citizen nor a green card holder in the United States.

For a foreign buyer, there are no special rules or regulations that must be carried out to purchase property.  They simply put in a contract, produce the funds and close.   If rent is collected, they must file income tax returns, a 1040NR, to declare the income and expenses as well a pay any applicable income tax.

The implications arrive at the time the foreigner is ready to sell!  Foreign nationals that sell real estate in the United States face heavy tax implications and are subject to FIRPTA.  If there was no legal guidance prior to buying, then there is little that a lawyer or tax professional can do to safeguard the foreigner.  The damage is done.

However, with the assistance of a real estate lawyer and accountant, and a little planning, many of the taxes can be avoided entirely.  As a real estate and business lawyer, as well as an accountant, I see it far too often. The closing takes place and a year later, when its time to sell, the damage is done.  At this point, shock takes over when these foreign sellers are told what they will have to pay the Internal Revenue Service.”  -Jacqueline A. Salcines, Esq., Attorney at Law, Accountant.  Therefore, the smart and savvy investor will hire an attorney to lay the foundation to structure the investment so as to avoid taxes and penalties.

The following are just a few of the items we can provide advice on that foreigners should consider prior to investing:

  1. How to take title –   As a foreign investor without either U.S. Citizenship status or residency status, foreign property buyers face quite a hefty tax upon the sale of their property. This can be avoided by either purchasing in the name of an LLC or structuring the purchase in a different manner.  While the capital gain is may only be taxed at 15%, if the foreigner dies while owning the real estate, the entire value in excess of $60,000 may be taxed at rates as high as  45%.
  2. FIRPTA Considerations.  The Foreign Investment Real Property Tax Act also requires settlement and closing agents to withhold 10% of the gross sale proceeds of foreigner, held at the time of closing,  and send to the Internal Revenue Service.  This insures that the IRS collects an amount if the foreign property owner fails to file an income tax return.  Properties under $300,000 may be exempt altogether if certain conditions are met
  3. EB-5 Visa.  The EB-5 category was created by Congress in the Immigration Act of 1990 to encourage the flow of foreign capitalStacks of One Hundred Dollar Bills with Small House. into the United States in order to create jobs for U.S. workers.  Under this Visa, the foreigner that invests a minimum of $500,000.00 can immediately obtain green cards for himself and his immediate qualifying family members.  This is also a consideration that foreigners can consider.

Although there are many rules and regulations to consider when purchasing and disposing of real property by foreigners in the United States, they do not have to be confusing.  Whether you are buying or selling, consult with a real estate lawyer and tax professional to ensure that you do not make any mistakes, and your investment is a sound one.

At the Law Offices of Jacqueline A. Salcines, PA, attorney Jacqueline A. Salcines is both a real estate lawyer, investment consultant, as well as an Accountant.  We stand able to assist foreigners to navigate the maze of foreign investing.  Call us today for a free consultation, or email us with any questions you may have.

Jacqueline A. Salcines, Esq.

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