Tax issues for foreign sellers and foreign owners of Florida real estate include FIRPTA, Federal Estate Tax exposure, Federal Income Taxation, Federal Gift Taxes and their application of US-Foreign Tax Treaties.  Some of these taxes are skewed against the foreigner because, let’s face it, the foreign person cannot vote for or against the Congressperson in their district.  However, the foreign person or entity can level the playing field with the right real estate attorney.

FIRPTA

When a Seller of Florida real estate is a foreign national without permanent residence status (active and current green card) or can satisfy the substantial presence test, the Buyer of that real estate is exposed to liability under the Federal Foreign Investment In Real Property Tax Act (FIRPTA).

FIRPTA was passed by Congress in 1980 to prevent foreign sellers of real estate to escape back to their home country without paying their fair share of US income taxes.  When a person, limited liability company or corporation sells real estate in Florida, there would be either a gain, loss, or in the rare event the seller would break even.   This is true whether the seller is a US citizen, resident alien, or non-resident alien.

Regardless of the status of the seller, ALL sellers are taxed exactly the same.  Thus if a foreign seller makes a profit on the sale of real estate, the foreign seller is expected to pay the same tax as if the foreign seller was a US seller.  The US Internal Revenue Service does not discriminate against whom, and the amount of tax they expect on a profitable sale.   The only difference is, a foreign seller, unless the foreign seller falls into an exemption, must post a “security deposit” with the US Treasury as security for the payment, if any, of the income tax that might be due.  That security deposit is the amount withheld by the buyer from the seller at the time of the transaction and deposited by the buyer to the US Treasury.   The foreign person must then file an income tax return and claim such amount of refund from the security deposit that is not required to pay the tax.

When a foreign person, foreign limited liability company, foreign estate, foreign trust or foreign corporation is involved in a Florida real estate transaction as a Seller, it is extremely important to align, early in the transaction (and is possible BEFORE the transaction) with an experienced Florida real estate attorney.  The Federal laws involved are legally beyond the scope of what a title company may advise.

BocaClosings℠, is the real estate and title insurance division of the boutique real estate law firm, Grant W. Kehres, P.A.   We handle millions of dollars of foreign transactions every year and have so for decades. 

ESTATE TAXES

When a person passes away in Florida owning real estate, there is an automatic Federal estate tax lien imposed on the real estate.  For US citizens and resident aliens (current green card holders), there are substantial exemptions available.  But for the foreign decedent, the exemption is only $60,000.00.  Therefore, on any death of a foreign person holding Florida real estate at the time of death worth more than $60,000.00, a US Federal estate tax is due and the property cannot be sold without the lien being released.

Fortunately, there are a number of ways to work through this issue. Early involvement of an experienced Florida real estate attorney is your best chance to minimize the impact of the tax and the complicated obstacle course that must be maneuvered to get to a successful sale of the property, on time.

BocaClosings℠ has both a title insurance department and a probate/estate administration department that seamlessly work together for our clients.  We provide our clients and Realtor® colleagues a convenient, cost effective, one-stop solutions to multiple closing issues.

INCOME TAXES

Foreign owners of Florida real estate that make their property available for use by others, whether under a lease, rental pool, or simply the use by the CEO of a foreign corporation that owns the Florida real estate, results in taxable income to the owner of the real estate.  In addition to the tax obligations, there are withholding requirements.  One trap for US persons (such as property managers or the well intended Realtor® that manages a foreign property interest for a foreign client) are exposed to the withholding requirements and the penalties for the failure to withhold. Consultation with an experienced Florida real estate attorney at BocaClosings℠ is your best bet to avoid a nasty surprise from the IRS.

GIFT TAXES

It does not occur to some people that gifting their Florida real estate to someone would create a gift tax due the United States.  No good deed goes unpunished.  This is true whether the benevolent owner is a US citizen, permanent resident, or non-resident alien.

Fortunately for US citizens and permanent residents, there are substantial exemptions (although there is no exemption from the filing requirement of a US Gift Tax Return unless the gift falls in the annual exclusion amount).  However, foreign persons, including foreign entities that make a gift of real estate in excess of $60,000.00 in value have a gift tax due the United States. (Think: quit claim deed!)    Once again, consultation with an experienced Florida real estate attorney at BocaClosings℠ is your best bet to avoid a nasty surprise from the IRS.

TAX TREATIES

Some countries have tax treaties with the United States that affect the sale and ownership of Florida real estate by foreign persons or entities.  Canada, the United Kingdom, France and Germany are some of the countries that have treaties with the US.  How these treaties interact with tax obligations and how they impact the foreign owner of Florida real estate is something beyond the scope of what a title company can handle.   Consultation with an experienced Florida real estate attorney at BocaClosings℠ is your best bet to avoid a nasty surprise from the IRS and your best bet to do some proactive tax planning