Real Estate Tax
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Purchasing U.S. real property has become a staple in the investment plans of many domestic and foreign nationals. However, more frequently than not, they enter into these transactions with very limited advice. It is not as simple as finding a realtor, placing an offer and buying your property; there are many variables that could end up being very costly, especially if you are a foreign national.
The professionals at Drage CPA are knowledgeable in the tax implications of U.S. real estate investment by foreign nationals.
We can assist you in obtaining your Individual Tax Identification Number (ITIN), and most importantly, we can assist you in planning ahead of the real estate closing to minimize your tax exposure by preparing your FIRPTA withholding certificate or by filing an IRS refund request of an improperly withheld tax.
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As a foreign investor, buying U.S. real property under your personal name could become very tricky as you could be subject to unintended tax consequences.
At Drage CPA we assist our international clients, individuals or groups, by creating the appropriate structure to purchase, administer and sale their U.S. Real Property.
You may ask what the possible unintended taxable consequences are; these could be:
- Foreign Investment Real Property Act Tax (FIRPTA). This tax requires the buyer of a property owned by a foreign individual to automatically deduct and withhold 15% from the sale price; we have seen situations in which the withholding agent applies an even higher rate. This means that at the time of the sale, if unprepared, the Foreign Investor has no power to stop or reduce the amount of the withholding. The Foreign Investor will be obligated to wait until the next tax season (April of the following year) to claim the refund of any excess withholding; at this time the Foreign Investor will have to file form 1040-NR (Income Tax Return for Non-Resident Aliens) along with form W-7 (Request for a Tax Identification Number), and then patiently wait for the IRS to approve and issue a refund.
- Estate Tax. In the U.S. there is a 40% tax on the assets owned by individuals at the time of their death. For U.S. Citizens and Green holder, there is an exemption that leaves without estate tax up to $13,610,000. However, for Non-Resident aliens, this exemption leaves exempt of estate tax only up to $60,000.
- Additional Probate Administration Expenses. To complicate matters, if the real property is owned under their individual names, everyone is subject to the Probate Administration Rules, which requires that at the death of an individual, a legal process is opened in State Court, for a judge to authorize the distribution of the assets of anyone owning assets in that State. Probate costs can be very high.
With proper planning and coordinated legal counsel, the taxing consequences for foreign investors in U.S. Real Property could be mitigated.
Are you a Non-Resident Alien, who is about to sell U.S. Real Property held under your individual name? Don’t wait! We will assist you and your Real Estate Agent by requesting a timely FIRPTA Withholding Certificate.
The professionals at Drage CPA will assist you in preparing form 8288 requesting the IRS for the approval to withhold an amount other than automatic 15% (or more) normally withhold by the buyer.
Taxpayers have generally 20 days after the sale to submit this form to the IRS.
Protect your investment by filing a timely and correct FIRPTA Withholding Certificate.
A Cost Segregation Analysis (CSA) is a tax strategy that allows businesses and real estate owners to accelerate depreciation deductions on specific components of their property, leading to significant tax savings. Essentially, it breaks down a property into various categories that depreciate at different rates, allowing some parts of the property to be depreciated over shorter periods than the standard 39-year or 27.5-year depreciation schedules for commercial and residential properties, respectively. By front-loading depreciation expenses, property owners reduce taxable income in the early years of ownership, which can lead to immediate tax savings and improved cash flow.
In addition, a properly conducted cost segregation study can assist in estate planning by improving the basis for tax planning strategies, and it can also enhance asset management by providing a detailed breakdown of building components and their respective values.
A Like-Kind Exchange, also known as a 1031 Exchange, is a tax-deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating capital gains tax liability from the sale of the first asset. It doesn’t extinguish the tax on capital gains, it only defers it to a later time.
These transactions are heavily inspected by the IRS thus, they require accurate bookkeeping and the assistance of qualified CPAs.
At Drage CPA, our professionals are specialized in providing outsourced bookkeeping services for real estate businesses and accounting for property management companies. We have worked with a diverse range of clients in the real estate sector in Florida and are savvy about the current market dynamics.
Our services are designed to improve productivity, increase profitability and reduce operating costs.