Buying Florida Real Estate: What Should Foreign Investors Know?

Buying Florida real estate and rights for foreign nationals

Foreign investors are free to purchase real estate in Florida, like anywhere else in the United States, without any intervention from a government agency. On the other hand, it should be noted that buying real estate in Florida in no way confers—on any foreign investor whatsoever—special privileges or even a different legal status. For those who wish to stay in the United States for longer than the standard visa allows, we advise that you contact an immigration specialist to understand the guidelines.

As the purchase of real estate in Florida is open to foreign nationals, they can invest in single-family homes, condominiums, and townhouses, as well as in duplexes, triplexes, and other forms of condos. They can buy real estate in their own name or through a legal entity. But the ways in which a buyer purchases property can have significant tax consequences—unless there is a home ownership exemption, real estate professionals recommend against buying a home in your own name in order to limit liability, minimize taxes, and ensure confidentiality.

The specifics of the American real estate market

In Florida, as in every U.S. state, there are specific rules for buying real estate. These rules are applicable during all stages of a real estate transaction and beyond. They relate, for example, to the types of contracts to be used, the method of concluding the sale, and the responsibilities of the various parties involved. Among the many specifics of the real estate market in the United States, note that:

• Information about real estate for sale is shared between agents who use a Multiple Listing Service (MLS)
• Next to the listed properties, there are off-market properties
• Real estate agents are remunerated on the basis of commissions paid by sellers 
• Real estate agents must be licensed. Licensing laws differ from state to state, especially in terms of the level of education required and the types of exams and certifications after licensing.

Real estate purchase and rental income

Real estate purchase

Foreign buyers are allowed to pay for their property in cash (no mortgage) ; however, be aware that U.S. law requires that cash transactions in excess of $10,000 must be reported to the federal government. Additionally, since March 2016, the U.S. Department of Finance has implemented a General Tracking Order (GTO) that requires a declaration of all cash transactions of over $1 million for real estate in Miami-Dade County. This ordinance was mainly implemented to determine the extent of money laundering in real estate cash transactions. While it is the management company’s responsibility to report these transactions, purchases involving wire transfers and/or personal checks are not affected by this obligation. Title search, insurance, and other legal and registration fees are generally the responsibility of the buyers—these fees equal an extra 1%–2% on top of the purchase price. The buyer is not required to be present at the closing of the sale and can sign a Power of Attorney, a legal document authorizing a third party to represent him.

Rental income and taxation

Foreign nationals who purchase real estate in Florida for the purpose of renting it out are subject to rental income tax. It is also why we always recommend to purchase under a legal entity, as more deductions can be made, therefore the owner can benefit from a better tax optimization. As the regulations for buying real estate in Florida are not the same as in Europe for example, foreign investors must be aware of the guidelines of the Internal Revenue Service (IRS) that determine whether they meet the requirements to be considered a U.S. resident for tax purposes. The Substantial Presence test, for instance, is a tool used by the IRS to determine the number of days a person has been physically present in the United States. Thus, an individual will be considered a tax resident from the moment he or she has been present for more than 183 days on American soil during the last 3 years and at least 31 days of the current year. Also note that the tax liability of a foreign property owner in his own country varies depending on the origin of the buyer. Indeed, some countries have signed a tax treaty with the United States, giving their nationals the benefit of special conditions.

Sale of property and taxation

When it comes to selling real estate in the United States, foreign nationals must follow the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, profits made by a foreign investor on the sale of real estate in the United States are subject to tax. As of February 2016, 15% of the gross purchase price has been withheld, whether or not a profit has been made. On the other hand, if the purchase price is less than $1 million and the buyer wishes to make the property his permanent residence for at least six months during the two years following the sale, the rate of taxation goes from 15% to 10%. Some exceptions are exempt from this tax, such as if the sale price is less than $300,000 and the buyer will use the property as a personal residence for at least half of the time during the two years after the sale. Foreign nationals can also defer real estate capital gains tax in the United States. This especially applies if they purchase other similar real estate under section 1031 of the IRS Code. Firpta can also be avoided if the property is held by a legal entity. ( See with our lawyers). Note, however, that the applicable guidelines are strict and must be followed to the letter. To ensure you are liaising appropriately with the IRS, it is best to have an expert accompany you.

While buying real estate in Florida is a privilege, the fact remains that some aspects of the American real estate market and the regulations and practices of the State of Florida require professional support. Don’t hesitate to contact us—our experts will be glad to assist you.