Are you thinking about investing in the US real estate market? Understanding the tax rules and legal steps involved is essential. Knowing these details will ease the purchase process and keep everything above board. Keep reading to learn the basics of US real estate taxes for foreign investors.
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4 Things To Know About US Real Estate Taxes As A Foreigner
1. Foreign Investment in Real Property Tax Act (FIRPTA)
If you're a foreign investor buying real estate in the United States, there are some important tax details to keep in mind. One key tax is the withholding tax under the Foreign Investment in Real Property Tax Act (FIRPTA). When a foreign seller sells a property, the buyer must hold back a portion of the sales price. The amount is typically 15%, and it is to cover taxes.
2. Know Before Planning
Taxes on real estate sales can vary depending on timing. If you hold the property for over a year, it is subject to capital gains tax. The rate for net gains ranges from 0-20%. However, if you sell within a year, the profit might be taxed as ordinary income.
There's also the question of whether you earn rental income from the property. In that case, there's a 30% withholding tax on the gross rental income unless you treat it as effectively connected income. Understanding these points can help you plan your investment strategy. Investors must learn about property taxes and income taxes. Additionally, there may be state and local taxes that affect investments. A local real estate expert can help you understand some of these issues.
3. Know The Legal Requirements
While no federal laws stop foreigners from purchasing real estate, you must follow local rules depending on where you're buying. Generally, you must provide:
- A valid passport or government-issued ID
- Proof of funds, like bank statements
- A Tax Identification Number (TIN)
Some states might have extra requirements or taxes for non-residents buying property. Investors should check the specific rules in the state where they plan to buy.
4. Finance
As an international buyer, financing is tricky, especially without a US credit history. Many banks ask for a bigger down payment—often between 30% and 40%—when working with foreign nationals. But don't worry! Some lenders, like HSBC, have special loan programs for international buyers.
Are you ready to become a real estate investor in the United States? Consider investing in Miami real estate. It is one of the top markets for foreign investors.
The Oscar Arellano Team is ready to guide international investors through the Miami market. We have access to some of the top listings in the region. Contact us to learn more about the Miami real estate market.
