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Tax Facts: Advice for International Real Estate Investors

Written By: Alan A. Lips, C.P.A.
Published By: Aventura News
Date: January 2005

A 70-year-old Brazilian is considering purchasing a condominium in Aventura for his daughter. Two brothers from Colombia have identified a warehouse near Miami International Airport that would be ideal for an import-export business. A Mexican entrepreneur wants to purchase and renovate a small hotel on Hollywood Beach.

This may not be your exact situation, however, if you are a non-U.S. resident planning to acquire U.S. real estate, you should of the special tax laws that apply when non-U.S. residents acquire U.S. Real Estate – namely FIRPTA (Foreign Investment Real Property Tax Accounting).

So before you sign a contract for the purchase of U.S. real estate, you should seek advice from a qualified tax professional. A good consultation will inform you of the structuring alternatives and educate you on the basic tax issues and possible tax ramifications surrounding your investment.

Among the tax issues you should consider:

• Will you be subject to U.S. withholding taxes? If so, how much, and when?

• If you sell your property for a gain, will you be eligible for a capital gain?

• If you die when you own the real estate, will you be subject to the estate tax?

• Are you looking for income providing property or development?

• How long do you intend to hold the property?

• How will the purchase affect your overall tax situation, including your country of primary residence?

            It is important to realize that when it comes to buying in South Florida every person’s situation is different. Therefore, it is difficult to provide general guidelines on how to structure each purchase. Each person’s situation has to be analyzed individually. Even if you already own U.S. property, you should discuss your current situation with a tax professional – an ownership structure you used five years ago may not be the best choice for you today.

            Tax considerations are particularly important if you are considering a real estate purchase through a partnership. An advance discussion of the relevant tax issues can go a long way toward ensuring a successful real estate venture.