I’m Eric Lanigan with Lanigan and Lanigan Attorneys in Winter Park Florida.
We often take certain things about real estate transactions for granted, yet I often forget when a foreign investor comes in the whole thing is foreign to them in terms of how things work.
You may watch the video “Tips for Buying Florida Real Estate from Overseas” on the Lanigan and Lanigan YouTube Channel.
Tips for Buy Florida Real Estate from Overseas
I’m going to take a couple minutes to go over a couple of things to take into consideration if you’re considering purchasing real estate in Florida and you’re from overseas. Here are tips for buying Florida real estate from overseas. So you’re not familiar with how transactions work in our area.
We often refer to the point where you complete the transaction as the closing. And I’m going to use that phrase a little bit as I talk forward.
Sometimes it will be referred to as the settlement. Either way what we’re talking about is that point and time where the buyer and the seller the realtor and the lawyer comes together all the papers are signed, money changes hands, and the title to the property changes.
Florida Closing Costs
Now in Florida there are certain closing costs that you need to take into consideration. One benefit we have in Florida is that there’s no sales tax on real estate transactions in Florida. In other words, no percentage of the selling price gets paid in taxes.
But there can be significant costs. For example if you have a mortgage you have documentary stamps on the mortgage and those are $3.50 on the thousand.
It doesn’t sound like much but if you’re buying a million dollar property it starts to all add up.
You also have intangible tax on the mortgage which is $2 a thousand. No if it’s a cash deal you don’t have either the documentary stamps or the intangible tax on the mortgage. But there are other closing costs.
Review Other Closing Costs
There’s the real estate commission, the inspection fees, unpaid taxes which may or may not be a buyers cost in a transaction. One thing you want to make sure that you always do is get a good faith estimate of what your closing costs will be before you sign the contract.
Review it and all the pre-closing costs with your attorney because there can be a great deal of negotiation of how the costs are divided between buyer and seller. And you want to make sure that you’re getting at least a fair shake on how those things are divided.
And often times if somebody’s really anxious to get rid of a property you can push a lot of those closing costs onto the seller and they’ll pay the costs just to get the sale done.
No Tax When Foreign National Buys Property
There’s no tax per se on the property when a foreign national purchases the property. It’s treated just like any other purchaser. If it’s rental property all rental income is subject to U.S. income taxes.
Many countries, most countries, probably have some form of double taxation treaty with the U.S. to prevent you from paying double taxes both in the United States and in your home country.
And generally speaking on rental properties in Florida there tends to be very little taxes paid, because there are very generous deductions paid for depreciation, mortgage interest and the full cost of two trips from where you live to Florida to inspect and review your property each year.
So when you take those things and you subtract them out off of rental income at least on paper you appear to be breaking even at least on the property.
Benefits to Being a Foreign Buyer
Now, when you get to the sale of the property you get into the Foreign Investment in Real Property Tax Act which goes back to I think 1980, 1990 which requires that 10 percent of the sales price is held back if the seller is a foreign national.
Interestingly the responsibility falls on the buyer to make sure that that happens not on the foreign national seller.
If the buyer doesn’t make sure that those funds are withheld then it is the buyer who the IRS is going to seek to collect that tax from. So it’s a tax that should be withheld if you are the seller, but ultimately it’s the seller who needs to make sure that it happens.
And that’s obviously based on the premise that if it’s a foreign national selling the property there’s a high likelihood that they’re going to take their sales proceeds and go back to their country of origin. And at that point the ability of the U.S. to collect those taxes is slim and none.
Values to Being a Foreign Seller
Now there is no requirement to do that withholding if the property is selling for less than $300,000 and the property is going to be the buyer’s personal residence.
There can be significant benefits from buying properties in what we call off-plan. Which is pre-construction.
And I’m going to do a separate video which talks about what are the benefits, what are the risks and rewards of looking into buying a property off plan if you’re a foreign investor.
Again, I’m Eric Lanigan with Lanigan and Lanigan attorneys Winter Park.