Foreign 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.
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