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#Five mistakes foreign buyers make.docx

#Five mistakes foreign buyers make.docx

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Published by Angel Calzadilla
This is a very important and crucial information that every #foreign investor should know prior to making any decision to invest in real property in the state of #Florida, #USA.
This is a very important and crucial information that every #foreign investor should know prior to making any decision to invest in real property in the state of #Florida, #USA.

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Categories:Types, Business/Law
Published by: Angel Calzadilla on Jul 16, 2013
Copyright:Attribution Non-commercial


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Five mistakes foreign buyers to Florida state U.S. make
.Mistake No. 1
“I do not need to worry about estate taxes; I am in good health”Even if you are young and healthy, it’s never too early to start planning
for what will happen to your estate when you are gone and how muchtax your loved ones will have to pay. The United States imposes anstate tax at a rate up to 40 percent on the portion of a foreign
individual’s gross state (assets controlled by taxpayer ) situated in the
United States that exceeds $60,000. The gross state includes real estateas well as other assets such as stocks of U.S. corporations located in theUnited States. Ac
cordingly, a foreigner’s state is generally subject to
U.S. state taxation if the foreigner dies owning U.S. real estate directly (and in certain cases, indirectly through an entity). If the foreigndecedent owns the U.S. real estate jointly with another individual, thefull value of the U.S. real estate is taxed except the extent the surviving joint tenant can prove he or she contributed to the original purchase of the U.S. real estate.A tax attorney and certified public accountant can work with a foreignbuyer to ensure that he or she is fully aware of the tax consequences of buying U.S. property.Mistake No. 2Believing that use of a foreign corporation will offer protection fromU.S. estate tax.
This may be true if it is done correctly. In general, purchasing U.S. realproperty through a foreign corporation can shield a a foreigner fromthe U.S. estate tax. The shares of a foreign corporation are considerednon-U.S. situs property, wich means the shares of the foreigncorporation are considered as being situated outside the United States.
As such, they are not subject to U.S. estate tax upon the foreigner’s
death. However, for such corporate ownership to be respected for taxpurposes, it is important that the foreign owner of the foreigncorporation enter into a lease agreement with the foreign corporationany time that foreign owner uses the underlying real estate forpersonal purposes. Adequate rent for for such personal use should bepaid to the foreign corporation, which may have U.S. income taxconsequences as well as require the filling of both a federal and aFlorida corporate income tax return.Otherwise, the Internal Revenue Service could assert that the foreigncorporation lacks substance and that the underlying U.S. real propertyis owned directly by the foreigner, thereby subjecting that U.S. propertyto estate taxation.Mistake No. 3Deciding to use the same structure used by a friend.Buying U.S. real estate through a foreign corporation can potentiallyinsulate a foreigner from U.S. estate tax if the sale is structuredproperly.However, this structure will result in significantly higher income tax
when the foreigner sells the property. A foreign corporation’s capital
gains from the sale of real estate is subject to combined U.S. federaland Florida corporate income tax rates totaling up to 38 percent. Thereis also the potential of an additional 30 percent U.S. branch profits tax,which is an extra income tax that the United States imposes on a
foreign corporation’s earnings.
 On the other hand, capital gains earned by an individual or passthrough entity, such as a limited liability company, are subject to capitalgains tax of up to 20 percent in 2013. Accordingly, if a foreigner intendsto invest in U.S. real estate and sell it for profit, a foreign corporation isclearly not a good ownership vehicle.Mistake No. 4
Transferring one’s U.S. real estate to someone else.A foreigner’s gift, sale or other transfer of U.s. real estate is generally
subject to U.S. income tax under the Foreign Investment in RealProperty Tax Act ( FIRPTA). The federal government collects this incometax ( or at least a portion of it ) by requiring the recipient ( e.g; thebuyer) of the U.S. real estate to withhold 10 percent of its grossproceeds or fair market value. In a situation where an entity technicallyhas to pay 10 percent to the IRS.The legal requirement to withhold 10 percent under FIRPTA existsregardless of whether there is any gain or ultimate income tax liabilitydue as a result of the transfers. Further, in 2013 the federalgovernment imposed a gift tax on the transfer of U.S. real estate to the

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