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Income tax on real estate investments for foreign buyers

When it comes to real estate, the U.S. has long been a safe haven for foreign investors from around the globe and Florida real estate has always been attractive to foreign buyers.  Tax laws tend to be very favorable for international investors who are willing to purchase real estate and business assets. A foreign buyer will generally pay income tax the same as US investor on its real estate income and the foreign taxpayer will pay tax on capital gains derived from a sale of US real property just the same. The majority of tax laws is complex and should only be dealt with by expert professionals, therefore proper planning on the part of the foreign buyer can alleviate risk from a legal and tax standpoint.

Investing in U.S. property can involve significant financial implications under the Foreign Investment in Real Property Tax Act (FIRPTA) and other U.S. tax laws, so a qualified tax advisor with international expertise can assist in understanding the tax code.  In the real estate transaction process, all foreign investors are subject to 10% withholding at closing unless other provisions are met – basically, foreign investors are required to file a US tax return and pay tax on the gain. The gain is the difference between the selling price and the seller’s cost of the property.

Classified as Non -Resident Alien’s an NRA includes foreign individuals, foreign corporations, and foreign estates and trusts. Non-residents are required to obtain a taxpayer identification number (“TIN”) before they can file a tax return. This is almost the same as social security number, but begins with “9”, and is used for identification. According to reports: Under FIRPTA, any profits made from the sale of U.S. property by a foreign national are subject to taxation but here are three exceptions that would exempt the sale from taxation:

  • If the seller is a resident alien and has a tax identification number (TIN);
  • If the sale price is less than $300,000 and the buyer will use the property as a personal residence at least 50% of the time for the next two years after closing; or
  • If the seller has obtained a withholding certificate from the IRS.
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