As the real estate market in the U.S. has made a strong indication of recovery, some outside of the United States have begun to look again at American real estate investments as a possibility. This leads some to wonder, though, whether it is even possible for a foreigner to buy real estate in the U.S.? If so, are there any special laws to be aware of or taxes that must be paid?
Unlike many countries that only allow land sales to those with citizenship in the country, the United States treats sales of real estate to foreigners almost the same as sales to citizens. The only limitations are usually imposed by homeowners associations, condominium associations, cooperatives, or other forms of community associations. A community association is an organization, often incorporated as a legal entity, that is charged with managing real property situated in a particular building or neighborhood. Most associations are mandatory, meaning that simply by purchasing a lot or unit within one of these communities, one is agreeing to be a member of the association and to obey all of its rules. Some states allow associations to control who sales of property can be made to in order to prevent the association from having absentee owners against whom it is impossible to enforce the association's rules. This is more of an exception than a rule, however, but it is still important to discuss this possibility with an attorney and your real estate professional prior to making a sale or purchase.
Financing
It is possible to obtain financing for a purchase by a foreign buyer. However, foreigners are more likely to pay higher interest rates and be required to make larger down payments (often 40% or more of the purchase price). Again, this is because of the relative risk of a foreign buyer, who may be impossible to serve with legal process and whose assets may be untouchable, versus a domestic buyer who will be easier to track down and who is subject to the state and national laws should a default occur.
Closing
Another area of concern is the travel that would be required to negotiate and close a land transaction. It could become quite costly if a foreign citizen must travel back and forth to the U.S. to handle each step of the real estate buying experience. Fortunately,it is possible to provide what is known as a “Power of Attorney” to an agent in the U.S. to make all of the appropriate arrangements and sign the appropriate documents.
Taxes
One thing that is a certainty in any real estate transaction is taxes. Unfortunately, these can be more complicated in land transactions involving foreign nationals, given that the tax laws of more than one country may apply. Different nations have different tax treaties with the U.S., so before finalizing any deals it is important to consult with a local tax expert in your country and possibly in the U.S., as well. Sometimes these laws may require a certain tax payment in the U.S. and a separate payment in the home nation, and some may only require taxes to be paid in the U.S. Also, the rate of taxation may vary by country.
On a related note, foreign buyers who finance their purchases with a 40% to 50% down payment are usually able to avoid paying income taxes on any rental income derived from the property for the first 10 to 15 years. This results from the types of expenses the U.S. government allows taxpayers to deduct from their income when filing income taxes. Things like mortgage interest, common charges, property taxes, and depreciation are included in these calculations, often leading to “negative income” calculations, meaning no taxes will need to be paid. This will eventually change the longer the property is owned, as some of these deductions eventually begin to run out, but this can be a great means of avoiding taxes on investment properties for a number of years.
When selling the property, the foreigner will always be subject to U.S. capital gains taxes. As a result, the foreign seller will automatically have 10% of the gross purchase price of the property withheld by the U.S. Internal Revenue Service (IRS). In some instances, this flat withholding may be too little or too much, given other items on the foreign national's tax return, and a refund or further payment may be due when one files their U.S. tax returns for that year.
There are numerous other considerations one should investigate as a foreign investor in U.S. real estate, but it is entirely possible and relatively easy to purchase land in America. For more information about the process and for further tips about taxes, legal protections, and other considerations when buying American real estate, please visit the Law Firms page of our website at HG.org and search for an attorney in the area where you wish to make your real estate purchase that specializes in real estate law.
Provided by HG.org
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