What to Know if you Want to Invest in U.S. Real Estate as a Foreigner?

EPGD Law Foreign Reporting

Can a Foreign Person Buy Property in the U.S. and in Florida?

The simple answer is yes. Anyone can buy property in the United States. However, foreigners are best suited to buy U.S. property with one-time payment instead of financing it. This is because if a foreigner wants to get a U.S. mortgage or a loan – it is often nearly impossible to get approved due to the lack of U.S. credit history. A foreign buyer, therefore, needs to be aware of the difficulty of getting property financing in the U.S. and have the necessary funds available to be able to make a one-time payment to buy the property. When selling U.S. property, it is also important to be aware of certain tax rules that foreign sellers face that do not apply to U.S. citizens. To get a more detailed assessment of how much taxes will be withheld from the sale, it is important to consult with a real estate attorney.

How is Property Owned by Foreigners Taxed in the U.S.?

When a foreign citizen owns property in the U.S., the property falls under the jurisdiction of the Foreign Investment in Real Property Tax Act (FIRPTA). Under this Act, there is sales tax of between 15 and 20% on the amount gained from the sale. Additionally, if the owner with a foreign citizenship passes away, the U.S. property will be subject to a 35% federal estate tax in addition to the state estate tax. This is because non-U.S. citizens are not granted the same tax exemptions as U.S. citizens are.

What Is the Best Way to Own U.S. Real Estate for Foreigners in Florida?

There is no simple answer to this question. There are many ways a foreign person can own U.S. based property. Direct ownership by a foreign citizen is the easiest way, but it burdens the owner of the property with sales taxes, estate taxes and even high taxes on the rental income from the property, if it is rented out. Additionally, it forces the foreign citizen to annually file a U.S. income tax return. Other ways for a foreign person to own U.S. property can be through a Limited Liability Company (LLC), a trust or a U.S. Corporation. It is important to note that a U.S. Corporation, however, is subject to U.S. corporate tax rates every year. A trust might in some cases protect the property from estate taxes, but in most cases is not very different from direct ownership. All of these ways of owning U.S. property have their drawbacks and their benefits, and each case should be evaluated separately by a corporate or tax attorney.

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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