We Serve Foreign Buyers and Sellers of Forida Real Estate (and the Real Estate Professionals who Support Them)
Individuals who are not United States residents who own real estate in Florida often are not educated about the various aspects of Florida and Federal law (especially pertaining to tax), that affect them and their property ownership. We support foreign individuals who own, buy, or sell Florida real property, and we also support the other professionals who serve them, in covering all important aspects of planning and compliance, so as not to subject the individual owner, or the property to risk and the harsh consequences of non-compliance. Some of the most important topics to be addressed with these individuals (and businesses) are –
Asset Protection
- International property owners are not immune from lawsuits and other risks associated with the property. They are also particularly susceptible to identity theft.
- Holding their property in an entity such as a limited liability company can reduce or virtually eliminate risk, (but also holds tax considerations and consequences that must be properly evaluated).
- Having sufficient property-casualty insurance will also mitigate risk.
Probate
- International property owners are subject to U.S. probate if the owner is an individual. For properties that are owned as joint tenants with right of survivorship, the ownership remains with the joint owner. When the joint owner passes away, probate occurs, of immediately if there is no joint owner.
- Probate can be avoided by holding the property in an entity such as a trust. A trust can be layered over a limited liability company to eliminate probate and provide asset protection.
Guardianship
- International property owners who become incapacitated may be subject to a guardianship. This is highly undesirable and should be avoided.
- Guardianship can be avoided by holding the property in a trust, or an LLC layered in a trust. The issue is providing succession of control of the property if the original owner becomes incapacitated.
Banking
- Internationals are not permitted to hold U.S. Bank accounts in some instances. Property ownership can sometimes qualify them for banking here, or the proper U.S. entity can also qualify.
Taxation
U.S. Taxation is the biggest pitfall of the legal issues pertaining to international property owners, during all phases of ownership, especially the eventual sale.
Foreign nationals owning property in the United States are subject to United States income tax filing requirements and taxation. Foreign owners who rent their properties must file a 1040-NR annually. Foreign sellers must file 1040-NR in the year of sale, even if the property was never rented. Most are not aware of these requirements. We can prepare forms 1040-NR for foreign owners of U.S. real estate, and advise them about when a return is necessary.
In order to file a U.S. Tax return, the international must obtain a U.S. ITIN (equivalent of a Social Security number for a non-U.S. citizen/resident). This can be a complicated process and requires appropriate documentation. We help our clients with this process.
FIRPTA withholding is a critical issue. If FIRPTA is required and is omitted, the property buyer and real estate agent are liable if the tax is not paid.
FIRPTA rules:
- Title agent collects and remits up to 15% of property sale price to the IRS at the time of sale, unless proven exempt.
- All sellers should sign FIRPTA affidavit at closing to protect all parties (even if neither party is believed to be a foreign national).
- Withholding certificate can avoid FIRPTA withholding (complicated and must be done properly and timely)
- Certain transactions are exempt from FIRPTA. Buyer must sign affidavit at closing – sale price less than $300,000, and buyer must intend to live in property more time than renting over 2 years following closing
- Relief also available if prices is more than $300,000 and less than $1,000,000 and buyer signs affidavit of intent to reside (withholding reduced to 10%)
- Tax return must be filed upon sale even if FIRPTA withholding was exempted.
Annual tax returns:
- Form 1040-NR must be filed every year if property is rented, even if you have a management company. (Withholding is done by U.S. Management companies, and 1040-NR serves as a refund claim if overpaid).
- Form 1040-NR must be filed in the year the property is sold, regardless of gain or loss, or withholding.
- Form 1120 and F-1120 or Form 1065 must be filed annually by corporations or partnerships who are owned by foreign nationals.
- For foreign nationals who become residents, a regular 1040 is required after a Social Security number is obtained.
Other taxation issues:
- Florida Department of Revenue – sales tax due on short term rental
- Joint ownership by foreign national with U.S. owners – tax return may be due on entity even if not formalized (partnership)
- IRS audit and notices
- Tax treaties and taxation of U.S. gain in the foreign national’s home country.
- Estate and gift tax (very low U.S. Federal Estate Tax exemptions apply to foreigners when passing U.S. property to heirs)
We advise and consult with foreign owners of Florida property and assist in compliance with all of the issues that are mentioned above. If you are a foreign property owner, or you are anticipating representing one in a purchase or sale transaction, we urge you to schedule a consultation to review compliance and planning with all the complicated issues. While the list above calls your attention to all the issues, we are here to support our clients and realtors with avoiding problems with proper planning, compliance and execution of planning, so that all of the pitfalls associated with property ownership and sale can be avoided.