Florida Realtor April 2011 : Page 7

“The person who gets the farthest is generally the one who is willing to do and dare. The sure-thing boat never gets far from shore.” —Dale Carnegie, American self-improvement author and lecturer GLObAL LEGAL cOncERns Law & Ethics LegAL Q & HotLine A FEDERAL LAw What is FIRPTA? FiRPtA is an acronym for the Foreign investment in Real Prop-erty tax Act. this tax is imposed on the amount realized from the sale (including exchanges and transfers) of real property owned by a foreign seller. there are recognized excep-tions to this tax-withholding requirement. given the com-plexities of tax laws, the buyer and seller should consult with a tax specialist to determine the exact withholding amount or to determine if an exemption to the FiRPtA requirement applies. Does FIRPTA apply to a foreign buyer? no. FiRPtA applies when the seller is a foreign person. LIcEnsE LAw I am a Florida broker. I was con-tacted by a real estate broker from Canada who has a buyer interested in purchasing prop-erty in Florida. The Canadian broker wants to refer this buyer to me in exchange for a referral fee. The Canadian broker will not be coming to Florida with the buyer. I verified that this broker has an active real estate license in Canada. May I pay the Canadian real estate licensee a referral fee? Yes. Section 475.25(1)(h), Florida Statutes, allows for a Florida broker to pay a foreign real estate licensee a referral fee. However, the Florida broker may pay the referral fee only to a “broker licensed or registered under the laws of a foreign state so long as the foreign broker does not violate any laws of this state.” Exemptions for global Property owners There are few restrictions on ownership of U.S. real property by foreign persons. However, there are a number of special concerns to be considered when dealing with foreign buyers and sellers of real property. f you’re working with global buyers and investors, it’s important to have some knowledge of the tax implica-tions they may face—one such tax conse-quence is that on the sale/rental of real property owned by foreign persons. A foreign person is defined as a nonresi-dent alien individual, a foreign corpora-tion not treated as a domestic corpora-tion, or a foreign partnership, trust or estate. Exemptions to FIRPTA Nonresident aliens and foreign corpora-tions must pay the capital gains tax on income derived from the sale of U.S. real property. They are also subject to the For-eign Investment in Real Property Tax Act (FIRPTA), a law enacted in 1980 that re-I quires a buyer to withhold a tax equal to 10 percent of the gross purchase price if the seller of real property is a foreign per-son—unless an exemption applies. The most common exemption to the FIRPTA requirement applies to a transaction in-volving the transfer of property that will be used as the buyer’s residence, with a purchase price of $300,000 or less. Finally, there’s the income tax on income-producing property owned by foreign persons. A foreign person is taxed at a flat 30 percent federal tax rate on gross rental income unless the foreign person makes a certain income election on his or her tax return. This election, which allows for deductions for regular expenses before income tax is calculated, is commonly known as net election. April 2011 FLORIDA REALTOR 7

Law & Ethics

Global LEGAL Concerns

Exemptions for global Property owners

There are few restrictions on ownership of U.S. real property by foreign persons. However, there are a number of special concerns to be considered when dealing with foreign buyers and sellers of real property.

If you’re working with global buyers and investors, it’s important to have some knowledge of the tax implications they may face—one such tax consequence is that on the sale/rental of real property owned by foreign persons. A foreign person is defined as a nonresident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate.

Exemptions to FIRPTA

Nonresident aliens and foreign corporations must pay the capital gains tax on income derived from the sale of U.S. real property. They are also subject to the Foreign Investment in Real Property Tax Act (FIRPTA), a law enacted in 1980 that requires a buyer to withhold a tax equal to 10 percent of the gross purchase price if the seller of real property is a foreign person— unless an exemption applies. The most common exemption to the FIRPTA requirement applies to a transaction involving the transfer of property that will be used as the buyer’s residence, with a purchase price of $300,000 or less.

Finally, there’s the income tax on income-producing property owned by foreign persons. A foreign person is taxed at a flat 30 percent federal tax rate on gross rental income unless the foreign person makes a certain income election on his or her tax return. This election, which allows for deductions for regular expenses before income tax is calculated, is commonly known as net election.

Other Concerns

In addition to the tax implications, there are other special concerns when dealing with foreign buyers and sellers. Immigration and national security laws require individual foreign persons to have a visa or other documentation to visit or remain in the United Stages. They must ensure that they have the legal documentation necessary to comply with immigration and national security laws.

They may also need an Individual Taxpayer Identification Number (ITIN), which is a tax-processing number available only to certain nonresident and resident aliens, their spouses and dependents who are not permitted to get a Social Security Number (SSN). The ITIN may be obtained from the IRS using a Form W-7. Because foreign buyers or sellers must have ITINs before closing real property transactions, it would be prudent for them to apply for the numbers early in the process.

Since the Statute of Frauds requires all enforceable contracts for sale of real estate to be in writing and signed by the party that will be charged, it may be wise for the foreign person to have a contract that has been written in English translated into his or her native language by an offcial translator. Florida Realtors® currently has the FAR-9 Sale and PurChase Contract and FARA-10 Residential Sale and Purchase Contract: Comprehensive Addendum available in Spanish, Portuguese and German. These translations may be obtained by logging on to floridarealtors.org/ToolsAndSupport/ Forms/index.cfm.

Obviously, a professional tax attorney or immigration attorney should handle questions from a global buyer or investor about tax and immigration issues. Once you highlight these concerns, encourage global buyers to seek counsel from the appropriate legal, tax, immigration and language professionals.

Ethics

Just Say No to Discrimination

Find out what happens when one Realtor® finds himself in a pickle with a seller who may want to discriminate.

With the globalization of the real estate market and with buyers from foreign countries as well as many diff erent ethnicities migrating to Florida to acquire real estate, it’s necessary to revisit a Realtor’s obligation in providing services to everyone.

Realtor Paul receives a phone call from Seller Sam, who wants to sell his investment property. Seller Sam’s primary residence is right across the street from the investment property, which he has rented out for many years but is now ready to sell. Realtor Paul does an extensive market analysis and meets with Seller Sam to establish the price and the listing agreement.

The price conversation is easy as the development is very well established and has not had challenges with distressed properties. Like Sam, almost all residents are retirees who bought in this development because it’s off the beaten path.

After signing the listing agreement Realtor Paul and Seller Sam discuss marketing options. Sam asks that the property’s advertisements say “quiet Streets, nice Catholic Community.” Paul checks his information and finds the words quiet streets are probably OK, but tells Sam that they can’t advertise a specific religious affiliation or preference.Sam is disappointed, but understands.On Paul’s way out the door, Sam says, “By the way, there are no terrorists in this neighborhood, and that is how we prefer it. Wink, wink, nudge, nudge.”

Realtor Paul assumes that Seller Sam was just kidding. The first open house is scheduled, and Paul contacts Sam with The details. There is a good amount of foot traffic at the open house, and Paul feels confident this listing will sell quickly.He soon receives an off er from Buyers Bill and Betty, who walked through the listing. When Realtor Paul presents the off er to Seller Sam, the seller says nothing about the price or terms but starts asking Paul questions about the buyers, wanting to know where they’re from and what they look like. He also asks if they’re from another country. Paul immediately realizes they have a problem and tells Sam that he can no longer represent him in the sale. Sam agrees and also says he wants to wait before accepting an off er. Paul agrees to communicate that to the buyers.

Paul tells the prospective buyers that the seller is not ready to respond to their offer.He also explains that he will no longer be representing the seller. Bill and Betty know someone in the neighborhood who has warned them about Sam and his preferences, and they feel that he is discriminating against them. They file a complaint against Paul, citing Article 10.

Is it a violation?

Most likely, the hearing panel will not find Paul in violation of Article 10 as once he suspected his seller planned to discriminate unlawfully, he counseled him against it, and when he suspected his seller was still planning to discriminate based on religion and national origin, he gave up the listing.

LegAL HotLine

FEDERAL Law

What is FIRPTA?

FiRPtA is an acronym for the Foreign investment in Real Property tax Act. This tax is imposed on the amount realized from the sale (including exchanges and transfers) of real property owned by a foreign seller.

There are recognized exceptions to this tax-withholding requirement. Given the complexities of tax laws, the buyer and seller should consult with a tax specialist to determine the exact withholding amount or to determine if an exemption to the FiRPtA requirement applies.

Does FIRPTA apply to a foreign buyer?

No. FiRPtA applies when the seller is a foreign person.

LicEnsE Law

I am a Florida broker. I was contacted by a real estate broker from Canada who has a buyer interested in purchasing property in Florida. The Canadian broker wants to refer this buyer to me in exchange for a referral fee. The Canadian broker will not be coming to Florida with the buyer. I verified that this broker has an active real estate license in Canada. May I pay the Canadian real estate licensee a referral fee?

Yes. Section 475.25(1)(h), Florida Statutes, allows for a Florida broker to pay a foreign real estate licensee a referral fee. However, the Florida broker may pay the referral fee only to a “broker licensed or registered under the laws of a foreign state so long as the foreign broker does not violate any laws of this state.”

Article 10 of the Realtor® Code of Ethics is very clear that “Realtors® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, or national origin. Realtors shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, or national origin.” Despite the clarity of this Article, sometimes our members run into problems when a seller is not as clear.

Read the full article at http://browndigital.bpc.com/article/Law+%26+Ethics/1288451/143037/article.html.

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