BUYING REAL ESTATE IN FLORIDA: WHAT SHOULD FOREIGN INVESTORS KNOW?

 BUYING REAL ESTATE IN FLORIDA: WHAT SHOULD FOREIGN INVESTORS KNOW?

In Florida, foreign nationals investing in real estate form a distinct segment of the population. According to figures from the National Association of Realtors (NAR), Florida has the highest number of foreign real estate investors in the United States. In fact, 41% invest in homes, 21% make a dual-use purchase—that is, they purchase a property that will be used as both a residence and a vacation home—and 22% invest in rental properties.

NAR figures demonstrate a definite enthusiasm among foreign investors for purchasing real estate in Florida. In this context, what should you know before taking the plunge?

Florida Real Estate Purchase and Freedom for Foreign Nationals

Foreign investors are free to purchase real estate in Florida, as they are anywhere else in the United States, without any intervention from a government agency. However, it's important to note that purchasing real estate in Florida does not confer any special privileges or a different legal status on any foreign investor. Those who wish to remain in the United States to live longer than the standard visa allows are advised to contact an immigration specialist to understand the applicable guidelines.

Sale of real estate and taxation

When it comes to selling real estate in the United States, foreign nationals must comply with 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. Since February 2016, 15% of the gross purchase price has been withheld, whether or not a profit has been made. However, if the purchase price is less than $1 million and the buyer wishes to make the property their permanent residence for at least six months within two years of the sale, the tax rate drops from 15% to 10%.

Certain exceptions result in exemption 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 following the sale. If the seller is a nonresident alien and has a tax identification number, or if the seller has retained a withholding certificate from the Internal Revenue Service (IRS).

Foreign nationals can also defer capital gains tax on real estate in the United States. This applies, for example, if they purchase another similar property under Section 1031 of the IRS Code. However, note that the applicable guidelines are strict and must be followed exactly. To do this properly, it is best to seek expert advice.

Real estate purchase and rental income

Foreign nationals who purchase real estate in Florida for rental purposes are subject to rental income tax. Taxes can be paid by paying 30% of the gross rental income or by paying regular U.S. tax rates based on the net income generated by the rental property in question.

Since Florida's real estate purchase regulations are not the same as those in France or any other European country, foreign investors must be familiar with IRS guidelines to determine in advance the applicable characteristics to be considered a "US resident" for tax purposes. Since the terms used are technical and the intricacies of the legislation are not accessible to everyone, it is wise to seek the assistance of a local specialist who acts as a cultural translator.

Real estate in the United States: get support from a French-speaking expert

Foreign investors should also familiarize themselves with the criteria of the "  substantial presence test" . This is a tool used by the US Internal Revenue Service (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 US soil in the last 3 years and at least 31 days in the current year.

It should also be noted that the tax liability of a foreign property owner in their own country varies depending on the buyer's origin. Indeed, some countries have signed a tax treaty with the United States, granting their nationals special conditions.

The specificities of the American real estate market

In Florida, as in every other US state, there are specific rules regarding the purchase of real estate. These rules apply to all stages of a real estate transaction and beyond. They concern, for example, the types of contracts to be used, the method of closing the sale, and the responsibilities of the various parties involved. Among the many specificities of the real estate market in the United States, note that:

Information about properties for sale is shared among agents using Multiple Listing Services (MLS). It can be accessed by potential buyers through various real estate websites on the Internet.

In addition to the properties listed and open to all, there are off-market properties.

Real estate agents in the United States are paid based on commissions paid by sellers; this means that buyers pay nothing for the services of an agent.

To practice their profession, real estate agents must be licensed. Licensing laws vary from state to state, particularly in terms of the level of training required and the types of exams and certifications required after obtaining a license.

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Financing your real estate purchase in Florida

After qualifying, buyers who have made a 30-40% down payment are typically granted financing for their real estate purchase. However, many banks require a minimum down payment from foreign buyers. Before applying for a mortgage in the United States, a foreign buyer must first obtain a favorable credit score. This is why investors looking to purchase real estate in Florida should consider working with banks that operate globally. These banks have the experience to verify ratings established in other countries to guide buyers through their real estate purchase.

Rules applicable to foreign buyers in the United States

Since Florida real estate is free for foreign nationals to purchase, they can invest in single-family homes, condominiums, and townhouses, as well as duplexes, triplexes, and other types of condos.

It's not uncommon for condominiums to establish rules prohibiting foreign nationals from owning property. Foreign nationals can purchase real estate in their own name or through a legal entity. The structure through which a buyer purchases a property can have significant tax consequences. Unless a homeownership exemption applies, real estate professionals recommend not purchasing a home in your own name to limit liability, minimize taxes, and ensure privacy.

Paying for Real Estate in Florida

Foreign buyers are permitted to pay cash for their real estate. However, be aware that U.S. law requires that cash transactions exceeding $10,000 be reported to the federal government. Additionally, since March 2016, the U.S. Treasury Department has implemented a General Tracking Order (GTO) that requires all cash transactions for real estate exceeding $1 million in Miami-Dade County to be reported.

This order was primarily implemented to determine the extent of money laundering in cash-based real estate transactions. While the management company is responsible for reporting these transactions, purchases involving wire transfers and/or personal checks are exempt from this requirement.

Title search fees, insurance, and other legal and registration fees are generally the buyer's responsibility. They range from 1 to 2% of the purchase price. Furthermore, the real estate buyer is not required to be present at the closing and may, if they wish, sign a power of attorney, a legal document authorizing a third party to represent them.

While buying real estate in Florida is attractive from many perspectives, there are certain specificities related to the American real estate market and the state's regulations and practices that require professional guidance. Much more than facilitating procedures and making the real estate transaction seamless, having an expert at your side will act as a cultural translator, saving you time, effort, and errors.