In Florida we are fortunate to have many foreign buyers and sellers of real estate. Sometimes they show up on a realtor’s threshold and are ready to purchase a property to use as an investment, or a vacation home, or a reason to remove their money from their home country, or to house their children while they are being educated. Usually, their motivations and circumstances are not divulged or asked about.
But there is a great benefit to “speaking their language” and finding out as early as possible (and maybe at the first visit) about their background and goals. One of the critical issues that should be dealt with up front is the immigration and residency status that they have or intend to have. This will not only affect the extent of their use, but also the tax issues that will affect their ownership, including income, capital gains, estate and gift taxes.
Non-U.S. citizens are treated differently than the rest of us for tax purposes, and usually not in a good way. The evaluation of this is complicated and multi-layered. In other words, it depends on a lot of factors, and the suggested ownership entity or structure, as well as transaction details, will vary from buyer to buyer, even if they are from the same country.
The most frequent challenge that realtors and closing agents face when dealing with foreign sellers (and buyers) is the FIRPTA issues that the parties must deal with at closing. We have addressed these issues in prior blogs (for example, https://berlinpatten.com/examples-of-new-firpta-withholding-rates-applied), and for the unprepared foreign seller, the required withholding of sales proceeds for taxes is a shock. Realtors can control seller expectations and prepare foreign sellers for this if many of the questions listed below are presented to the closing parties. These issues should actually be dealt with far in advance of closing, both to prepare for the FIRPTA withholding calculations and also to address possible exemptions for FIRPTA.
The basic information that needs to be gathered to provide initial guidance includes asking the following questions. These are necessary for a party’s tax, FIRPTA and ownership decisions, and a realtor who can get their customer to address these issues early on will create a more complete and positive closing experience:
- What is their home country?
- What is their US tax status for income taxes (and for gift and estate taxes – they are not the same)?
- What is their US residence status (and of their beneficiaries) – this is typically their immigration or visa status?
- What is the intended use of the property (investment, business, vacation only, mixture)?
- Who are their home country advisors, and US advisors, if they have any?
- Will they pay cash or require financing (will they qualify for loan underwriting with a lender)?
- What is the approximate value of their worldwide assets?
Multiple professionals should be involved in advising the parties BEFORE the purchase. This might include tax, immigration and business counselling both in the United States and in their home country. Generally, a foreign party needs to understand (in advance, if possible) about:
- What happens if they receive income from the property?
- What happens if they finance the property?
- What happens when they sell the property?
- What happens if they die owning the property?
- What happens if they gift the property?
- What are the best options for taking title to the U.S. property?
- What happens if they take title one way, and then change to a different ownership structure?
If you help these foreign buyers and sellers with their transactions in the United States and you don’t know why these questions need to be asked and addressed, then getting these foreign buyers and sellers in front of competent professionals is critical as early as possible in the process. Learning their “language” and having them get appropriate advice will avoid misunderstandings and negative outcomes.
As always, if you have any questions, we encourage you to reach out to one of the attorneys at Berlin Patten Ebling, or speak with your local real estate attorney for guidance.
Berlin Patten Ebling, PLLC
Article Authored by Christopher Caswell, Esq. firstname.lastname@example.org
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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