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Issues For Non U.S. Buyers Information 

​Prior to making any purchase of U.S. real estate, non U.S. buyers should consult qualified legal and tax advisors regarding the form of ownership that should be used and the tax implications for different ownership structures. Buying directly in the investor's personal name has significant consequences for annual U.S. income tax computation and reporting and  applicable U.S. taxes in the event of sale of the property or death of the investor. Subject to the specifics of each case, the general alternatives and consequences are as follows:

If a Foreign Individual invests directly in U.S. real property: 

- Foreign Individual will be deemed to be engaged in a U.S. trade or business
- Foreign Individual is required to file annual U.S. income tax returns and pay tax on rental income (possibly up to 39.6% unless they make certain income elections on their returns.
- Upon disposition of U.S. real property by a Foreign Individual, sale proceeds are 

  • Subject to a U.S. income withholding tax called FIRPTA (Foreign Investment in Real Property Tax Act of 1980) on total amount realized (gross proceeds). The applicable tax rate applicable may be 0%, 10% or 15% depending on 1) the gross amount realized, 2) the use of the property by the buyer or transferee and 3) the qualification of the buyer as a non U.S. pension fund. These new conditions become effective on February 16, 2016 as a result of FIRPTA reforms enacted by U.S. law in December 2015. Amounts realized under $ 300,000 may be subject to exemption depending on the use of the property
  • Subject to capital gains tax on income from sales. Foreign Individual pays U.S. income tax (20% plus 3.8%)
  • Subject to U.S. Estate Tax (45%) upon his / her death during the ownership of the subject property. 

General alternatives that can be considered to help reduce the total of applicable U.S. taxes are the following: 

1. Foreign Individual invests in U.S. real property indirectly through a Foreign Corporation

2. Foreign Individual invests in U.S. real property indirectly through a U.S. Corporation

3. Foreign Individual invests in U.S. real property indirectly through a U.S. Corporation owned by a Foreign Corporation

The above alternatives have different consequences as to income taxes, estate taxes and income tax reporting. Each option should be reviewed with qualified U.S. legal and tax advisors so as to effectively plan an acquisition and execute the purchase in a manner that meets the goals of the investors and avoids unexpected costs and taxes and significant loss of returns upon disposition. It is generally very difficult and costly to change and remedy ownership structures after realizing a purchase.

Property Taxes

Property tax payments are required as an additional cost of real property ownership. These payments can be added to a loan or paid directly to the taxing agency. Failure to pay property taxes can lead to financial penalties and even loss of the property. Just as a taxing agency (usually a county) has remedies against a property owner for failure to pay property taxes, so may a lender, since the failure to pay usually is also deemed a breach of the loan agreement. It is important to know that change in ownership, such as altering title among family members and differing entities may cause the property value to be reassessed, and the property tax payments to increase.