Florida Realtor April 2014 : Page 22

wOrking with gLObaL buyers Potential Legal by steVen l. cantoR, esq. aT a gLaNCE Foreign buyers and investors should meet with tax and immigration specialists before they sign a contract. Structuring the sale correctly depends on individual goals and circumstances. It’s important to know the visa options available to foreign buyers and investors. educate yourself on the five common mistakes real estate professionals make when working with international customers. n more than 30 years as an attorney and tax advisor for real estate professionals and their international customers, I’ve seen their mistakes, many of which were caused by a failure to understand that everything—from determining what individual or entity should be listed as the purchaser on the contract, to the way a rental property must be managed, to the procedures to be followed when the real prop-erty is to be sold—is different when dealing with international customers. Here are some questions that highlight these potential pitfalls, the resolution of which has a common theme—proper advance planning. My international customer signed the contract and made a deposit. What are the tax consequences? Questions about the tax consequences of U.S. real estate ownership ought to be among the first asked by foreign investors, before they sign a contract. That’s because the way title to U.S. real property is held has significant income, gift and estate tax consequences. There is no “one size fits all” answer to the question of proper struc-turing of the investment, regardless of whether it’s a condo on the beach or raw land. Merely forming an offshore company to serve as the purchaser may not be the right answer for your customer. Proper planning takes into account all I 1. NOW YOU KNOW Homes bought sight unseen. Foreign investors are so anxious to snag real estate deals in the United States—before the housing recovery pushes home prices up too far—that they’re buying homes over the Internet before they’ve even looked at them in person. With popular property markets like Vancouver and Toronto showing significant signs of softening, Asian investors seem to be shifting their focus south of the border to the United States, according to Canadians who specialize in marketing bargain-basement Florida houses and condos to snowbirds. source: susan pigg, toronto star 22 FLORIDA REALTOR April 2014

5 Common Legal Slip Ups

Steven L. Cantor, Esq.

Educate yourself on the five common mistakes real estate professionals make when working with international customers.

In more than 30 years as an attorney and tax advisor for real estate professionals and their international customers, I’ve seen their mistakes, many of which were caused by a failure to understand that everything—from determining what individual or entity should be listed as the purchaser on the contract, to the way a rental property must be managed, to the procedures to be followed when the real property is to be sold—is different when dealing with international customers.

Here are some questions that highlight these potential pitfalls, the resolution of which has a common theme—proper advance planning.

1. My international customer signed the contract and made a deposit. What are the tax consequences?

Questions about the tax consequences of U.S. real estate ownership ought to be among the first asked by foreign investors, before they sign a contract. That’s because the way title to U.S. real property is held has significant income, gift and estate tax consequences. There is no “one size fits all” answer to the question of proper structuring of the investment, regardless of whether it’s a condo on the beach or raw land. Merely forming an offshore company to serve as the purchaser may not be the right answer for your customer. Proper planning takes into account all The buyer’s objectives. What looks like an advantageous income tax solution may have unwanted estate tax consequences upon the buyer’s death.

2. Can’t my international customer merely add his children’s names to the deed to avoid estate tax and probate administration?

Sure, but only if your international customer is prepared to immediately pay federal gift tax. If a property is located in the United States, adding someone’s name to a deed for anything other than full and adequate consideration for the property interest thus conveyed is automatically deemed to be a gift and thus subject to federal gift tax. There are certain methods of ensuring that one’s children might inherit the property without incurring an immediate gift tax, but merely adding a name on a deed is not one of them.

3. I’m collecting rent for my international customer. What do you mean when you say that there’s a withholding tax on rental income?

By collecting rent for an international customer, you’re now what the Internal Revenue Code calls a withholding agent. Unless you’ve already obtained an IRS Form W-8ECI from your international customer who has made an election to treat the rental income as “effectively connected income," you are responsible for collecting 30 percent of the gross rental receipts in order to avoid personal liability for the tax. Otherwise, your liability will include amounts that should have include amounts that should have been paid plus interest, penalties and, where applicable, criminal sanctions.

4. My international customer’s property is selling for a loss. Can’t we just ignore the FirpTa [Foreign Investment in real property Tax act] withholding altogether so we don’t delay the closing?

Absolutely not. The applicable exception to withholding under FIRPTA is dependent on your foreign seller’s obtaining a qualifying statement from the IRS that he is either exempt from tax or entitled to a reduced withholding amount. There are proper procedures for holding funds in escrow pending receipt of the IRS statement, assuming that an application to the IRS has already been made. Simply ignoring FIRPTA withholding altogether will result in the withholding agent’s being held liable.

5. Can’t my international customer just pay for his U. S. resident child’s real estate purchase?

No, not if he wants to avoid federal gift tax. If the child has already signed a binding contract to buy the property, the Parent’s payment will be deemed a taxable gift of U.S. real property. There’s a way to avoid this problem if the funds are transferred to the child before any contract is signed.

For international customers, buying property in the United States requires that questions be asked before a contract is signed. The best service a real estate professional can offer these buyers is access to a qualified group of tax, business, estate planning and immigration professionals who can help them structure the purchase correctly.

Steven L. Cantor, CIPS, is the managing partner of Cantor & Webb PA in Miami.He was one of the originators of the CIPS program when he was a leader of FIABCI, the International Real Estate Federation, before it was transferred to NAR.

IMMIGRATION SOLUTIONS

3 Visa Options Explained

Educate yourself on the different visa options for international customers.

by mattHeW t. Galati

Many international buyers have a concern beyond a successful closing: obtaining an immigration status that allows them to live in the United states for more than the six months per year that visitors can usually remain. The immigration laws do not provide for a homebuyer visa. Most immigration paths require sponsorship by a family member or an employer. For many, especially those approaching retirement, these routes are not viable. Alternatively, investment in the United states can be a solution for either a long-term visa or a green card. Here are some popular options:

1. EB-5 Visa. One popular option to obtain a green card is through the EB-5 program. EB-5 immigrantinvestors are required to invest a minimum of $500,000 or $1 million, depending on geography, into a U.s. business. The business must create at least 10 jobs for U.s. workers.

Immigrant-investors may manage their businesses and hire workers directly, but need not do so. Approximately 90 percent of EB-5 immigration is through government- approved regional centers. These entities serve to aggregate EB-5 qualifying investments to fund large, multimillion-dollar projects and manage those projects thereafter. Investors are generally limited to advisory roles, providing them more freedom. With a green card, investors and their families may work (or not work) and live anywhere in the United states.

There are some drawbacks. Those with green cards are subject to worldwide income taxation and usually must live permanently in the United states.

2. Treaty Investor Visa (E-2).

For some, obtaining a nonimmigrant (temporary) visa is a better option. A Treaty investor Visa (E-2) permits one to start a business and live in the United states year-round. The investor may work in the business or hire others to manage it. There is no threshold investment amount or quantified minimum job creation. The investment must be substantial relative to startup costs, and the business must be capable of generating nonmarginal profits. This temporary visa can be extended indefinitely for as long as the business is operating. E-2 spouses can work, and children can attend schools. However, E-2 availability requires that there be a treaty between the United states and the investor’s country of nationality, whereas EB-5 is universal. Most European countries have treaties, but many emerging markets (e.g., China and india) do not.

3. Temporary Visitor Visa (B-2).

Finally, there is always the option of owning a home in Temporary Visitor Visa (B-2) status. With sixmonth admissions, this may be the best option for those buying a seasonal home. However, visitors do not have work authorization, nor may children enroll in school. Other practical issues, such as obtaining a U.s. driver’s license, can be difficult.

Navigating the immigration system for buyers can be tricky, and it is always helpful to partner with an immigration lawyer who can advise on status issues.

Matthew T. Galati is an associate attorney with immigration law firm Klasko, Rulon, Stock & Seltzer LLP in Philadelphia.

Read the full article at http://browndigital.bpc.com/article/5+Common+Legal+Slip+Ups/1663176/201925/article.html.

Previous Page  Next Page


Publication List
Using a screen reader? Click Here