Are You a Foreigner Buying U.S. Real Estate? Read This Before Making a Purchase.
If you're an international buyer looking to purchase real estate in the United States, you're not alone. Across the U.S., international buyers have been purchasing property at an incredible pace. For example, in South Florida, foreign buyers spent a record $7.1 billion on property in 2017 alone, and a record 35% of all Miami real estate closings went to buyers from outside the U.S. Despite the fast pace of sales, foreign buyers may not understand the importance of title in the United States, and also may not understand the tax implications of the property they are purchasing.
Title Is Different Outside the United States: Here's How
In most countries, titles to property are assigned by a central government agency or registry-- and, if there are any issues, the aggrieved parties may be entitled to a tax-funded payout. The U.S., in contrast, has a private system, where title is not regulated by any one body, and private property owners need to take steps to protect themselves against title problems. In most cases, the best way to do this is by ordering a title search and purchasing quality title insurance.
What are the Tax Implications for Foreign Buyers?
In addition to understanding the difference between title in the U.S. and in other countries, foreign buyers should also be careful to understand how owning a property in the United States may affect their overall tax burden. To do so, you'll likely want to contact an experienced tax attorney or real estate advisor-- but first, you should ask yourself a few questions, including:
- Am I planning to live in the property or simply rent it?
- If renting it, will I be managing it myself, or will another company be doing this?
- Am I planning to hold the property for a long time or sell it quickly?
- Am I planing to pass the property down to my heirs?
Should You BecomE a U.S. Tax Resident?
If you become a U.S. citizen, qualify for permanent residence, or satisfy a "substantial presence" test (meaning you've spent a certain number of days in the U.S.), you will qualify as a U.S. tax resident, which can significantly change the way you're taxed. Most importantly, U.S. tax residents are required to report all their worldwide income to the IRS-- therefore, many foreign buyers may want to attempt to avoid this.