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Withholding tax planning for foreign purchasers of U.S. real estate

July 15, 2014 by Daniel S. Gonzales Leave a Comment

Withholding tax planningForeign purchasers have been—and continue to be—major investors in our local real estate markets. During the 12 months ending in March 2013, foreign buyers committed more than $68 billion to U.S. residential real estate. Particularly in California and Florida, a significant proportion of purchasers of residential real estate hail from abroad. Unfortunately, some of these purchasers will end up paying more taxes over the life of their real estate investment than they would have had they utilized proper planning.

For many of these buyers, U.S. real estate is primarily an investment. When foreign purchasers sell real estate, they must pay U.S. tax on any gain realized from those sales. Payment of this tax is enforced with the requirement, by statute, that 10% of the gross sales proceeds be withheld at closing.

Proper tax planning before the purchase of the property may enable the foreign buyer to avoid U.S. taxes on the subsequent sale. Various strategies exist that can reduce or eliminate tax liability, including acquiring the property through a U.S. corporation .

Real estate brokers have the expertise to assist foreign investors in buying and selling property, but prudence also suggests consulting a specialist in real estate law before completing such transactions in order to help ensure the best possible results.

Filed Under: real estate purchases, tax planning, taxes

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Mr. Gonzales is in private practice, providing representation, advice and counsel in complex real estate, corporate, and business transactions on behalf of public and private institutions, businesses, and individuals.

This material has been prepared by Daniel S. Gonzales for informational purposes only and does not constitute advertising, a solicitation, or legal advice. Neither delivery nor transmission of this material or the information contained herein is intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship. The reader should not rely upon this information for any purpose without seeking legal advice from a licensed attorney. The information contained in this material is provided only as general information and is not promised or guaranteed to be correct or complete. Daniel S. Gonzales expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this material.

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