Most nonresident aliens (NRA) are able to get a mortgage to purchase a property. Some banks currently offer loans to foreigners up to 70% of the value of the property, to pay up to 30-year term with a fixed interest rate of between 3% and 5% per year -during the first five years, and adjustable rate the following term. Contact us
If you plan to rent your property, the ideal would be that the rent you collect covers – at least – the monthly mortgage payments, condo expenses, taxes and insurance. However, if the rent you collect does not cover everything, you always have a property as a safe reserve of capital – purchased with money the bank lent to you.
TIP: It is important to buy good opportunities in real estate where the rent you collect is higher than the monthly expenditures (mortgage installments + maintenance + taxes).
In the United States, a foreigner can purchase one or many properties under a company’s name. For a non-resident alien (NRA) opening a company in the United States is as simple as for any American citizen. The cost for setting up a LLC in Florida starts at less than $200 and the process takes about a week.
Setting up a company in the United States is very convenient for many reasons, being of special importance that you can make deductions to the income tax. In order to avoid making mistakes when filing taxes for your company, you must have a good certified public accountant (CPA)
WARNING: Although a US company is a legal entity and can operate commercially without restrictions, if you don’t have a special visa or you are not a US resident, you are not allowed to perform any work.
If you are the sole owner (sole proprietorship) of a LLC (Limited Liability Corporation), in the case of dispute, you may have full personal responsibility for the company. It means that if any legal action is taken against the company, your personal assets could be sized to pay debts to creditors.
TIP: In some cases, it may be more convenient that you set up a ‘partnership’ LLC, constituted by more than one partner. We strongly suggest you to check with the appropriate professionals about the legal form which is best suited to your needs.
You are entitled to use the structure that most suits to your needs and – as far as you don’t break the laws, helps you pay less taxes in the United States.
Nonresident aliens who invest in real estate in the United States generally do so through foreign corporations. This classic corporate structure avoids the imposition of the estate tax, but –on the other hand, can be very costly in terms of income tax.
Nonresident aliens are taxable:
Under the current law, income is typically taxed at a top tax rate of 39.6%, and long term capital gains are taxed to a maximum rate of 20%. In addition, state and local taxes may also apply.
In the case of income earned by a domestic corporation, two levels of taxes apply:
First, the income is subject to corporation tax at a maximum rate of 35% (plus state and local taxes as applicable).
Second, dividends paid by the corporation to foreign shareholders are subject to withholding tax at a rate of 30% (unless a treaty exemption or reduction applies).
TIP: With proper planning, distribution of dividends to foreign shareholders can result tax free.
When a nonresident alien dies while owning real estate and/or other assets in the United States, the assets are subject to tax on the hereditary succession (Estate Tax). If the property is owned by a domestic corporation in the United States and the nonresident alien directly – and solely- owns the domestic corporation shares, the inheritance tax is also applied because the shares of the domestic corporation is considered an asset located “in situ” in the United States.
Under current law, the rate of the federal estate tax in the US is up 40%, plus state taxes as applicable.
TIP: When the owner of a real estate property or other assets in the United States is a foreign corporation whose shares are located abroad, the assets are not subject to federal estate tax.
Mostly, non-resident foreigners invest in real estate in the United States through foreign corporations. In some cases, foreign companies own the property directly, and in others, foreign companies own the property through domestic corporations. The foreign company serves as a “blocker” to protect foreign investors from any risk of liability for estate tax. Beware the cost of such protection may be very high.
There are a number of possible structures that should be considered by non-resident foreigners wishing to invest in the US real estate market. Each structure has its pros and cons; a structure that works for one investor might not work for another. Therefore, it is necessary to make a careful analysis of the needs and the available options.
If you have a property in the United States in your personal name, in case of your death the state can keep between 40% and 50% in taxes of the property value because of the Estate Tax.
Besides the city tax on real estate, businesses with real estate are subject to income tax and capital gains upon sale of the property.
If you are a non-resident alien, buying a property in your personal name is subject to FIRPTA –Foreign Investment in Real Property Tax Act, and if you rent the property you will pay a flat tax of 30% of the income you receive. When you sell the property it is subject – under FIRPTA – to 10% withholding tax.
But if you buy a property as a long term investment, the tax scheme is different and you could pay 20% only.
TIP: Owning a corporation – or a scheme of several corporations, could help you avoid legally some taxes.
There is no ideal single formula for all types of investments. Each legal structure has advantages and disadvantages depending on the type, purpose and amount of investment you want to make. A scheme might be convenient in some cases, but wrong in others. So before you invest, you should plan the most suitable investment scheme, therefore it is of essential that before investing you consult with tax specialists and good professionals in the United States.
Pegasus Luxury Realty offers the best deals and opportunities in residential and commercial real estate in Miami and Southeast Florida. Contact us and find out our advantages and why our worldwide clients choose our firm over other real estate brokers. We have a selected inventory of residential properties: condos, condominiums, apartments, preconstruction, new construction, new developments, luxury realty, luxury penthouses, luxury condos and apartments, and commercial real estate.
Disclaimer: The information provided in our website is for basic general guidance only and DOES NOT constitute legal advice or intends to replace the advice of an attorney or a certified public accountant. We believe the data displayed in our site and its sources to be reliable; however, Pegasus Luxury Realty makes no warranty, guarantee or representation about it. Any interested party must seek appropriate professional advice.