South Florida draws visitors from around the world and remains an attractive area for foreign buyers interested in purchasing property in the United States. Miami has a unique mixture of diverse people from all cultural backgrounds in distinctive and vibrant neighborhoods. South Beach, Miami and the surrounding areas of South Florida offer sunshine, magnificent beaches, water activities and much more, making this a perfect area for foreign buyers interested in purchasing a second home.
The opportunity to own a Florida condo has never been better. The oversupply of condominiums, discount prices and the weakness of the American dollar make purchasing properties in South Florida more attractive to foreign buyers than ever.
The Process for Foreign Buyers
When purchasing a condo in Florida, having a knowledgeable real estate agent to help you navigate the process is essential. There are two types of agents, one representing the seller or developer and another to represent the interests of the buyer. All Florida Condos is an experienced agency with agents to help you in locating a property, presenting your offer and negotiating the sale on your behalf.
There is no fee paid by the buyer for the services of a real estate agent. The seller pays the agent fees. There are many Florida laws regarding real estate and property that exist to protect the interests of buyers. We will explain these laws to you.
Step 1: Available Funds for Deposit
The buyer is required to make arrangements with their home bank to wire a deposit. The amount of the deposit varies, depending on the transaction, but is usually between ten and fifty percent of the purchase price of the property. All Florida Condos will help you set up an account with a local Florida bank and the deposit will be held in a separate trust to protect the buyer.
Step 2: Finding a Property
The professionals at All Florida Condos will assist you in searching for condos for sale, compare properties with recent condo sales and current market prices to help you determine the amount of your offer. We assist you in presenting the offer to the seller and completely explain closing costs, condo fees, property taxes and other issues surrounding the property purchase and ownership.
If needed, we can recommend attorneys that specialize in representing international buyers. We also help with securing financing, furnishing and decorating the condo. We assist many international buyers in renting out their units and reselling.
Foreigners Selling Real Property in the US – FIRPTA Basics
The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted to curtail lost capital gain tax revenue from property sales by foreign individuals and investors. Understanding FIRPTA helps the seller understand what to expect, so there are no surprises.
The sale of property by a foreign owner in the United States is subject to capital gain tax on the profit made in the overall transaction. FIRPTA requires the withholding tax to be deducted on the gross sale price of 10%. In addition, some states charge an additional percentage. Since the tax is calculated on the gross sale of the house and not the actual capital gains, there is a possibility the amount withheld will be more than the actual amount owed.
Exemptions to FIRPTA
There is no way to avoid FIRPTA, but there are some exemptions. If the sale is for a residence with a sale price of less than $300,000, the sale is exempt from capital gains taxes under FIRPTA. Another option to mitigate the tax is to apply for a federal withholding reduction with a withholding certificate. This reduction can be requested if the amount withheld exceeds the capital gain tax liability. When the application is submitted before closing, the money is put in escrow until the IRS notifies them of the reduced amount. At that time, the IRS will be paid the actual amount due and the balance will be refunded to the buyer.
This is a time consuming process and requires an international taxpayer identification number on the withholding certificate application. The entire process to apply for the international taxpayer identification number first and then apply for the withholding certificate can take up to three months and the funds can sit in escrow for a another four or five months.
Before a foreign owner sells property, they should consider the requirements of FIRPTA. Being prepared ahead of time helps to shorten the time frame at the time of sale. At All Florida Condos, we advise our international buyers to apply for the ITIN when they purchase the property. Eventually, when this number is needed in the event of a sale, months will be saved.
Another solution sometimes used by international real estate investors is to form a U.S. Corporation to hold the real property. At the time of sale, the seller will be a U.S. entity, which means that FIRPTA will not apply and the withholding tax and need to apply for an ITIN or withholding certificate will not apply.
For a foreign owner to recover a portion of the ten percent that is more than the full amount owed, the owner must file for a refund at the end of the year.