The sale of real estate to foreigners in the United States is similar to sales made to the citizens. The limitations imposed are usually brought in place by homeowners associations, cooperatives or other forms of community association.
These associations are organizations incorporated as legal entities that are in charge of managing real property situated in a particular building or neighborhood. Most of these associations are mandatory which implies that by purchasing a lot or unit within one of these communities, a person automatically agrees to be a member and thus has to obey all its rules. Some states permit such associations to control who the buyer of property should be. This is done to prevent the number of absentee owners since it is impossible to enforce the association’s rules against them.
It is possible for foreign buyers to finance a purchase but they are likely to pay higher interest rates and make larger down payments (40% or more of the purchase price). This is because it may be impossible to serve a foreigner with legal process since his/her assets may be untouchable, which is not the case with citizens.
To make it easier for foreigners to close a transaction, “Power of Attorney” can be provided to an agent in the U.S., who could then make all appropriate arrangements and sign the required documents.
Taxes involved in real estate transactions are complicated in case of foreign nationals since tax law of more than one country may be applicable on them. Different nations have different tax treaties with the U.S. and thus it is essential to consult a local tax expert in your country and the U.S.
Foreign buyers who finance their purchases with a 40% to 50% down payment can avoid paying income taxes on any rental income derived from the property for the first 10 to 15 years. This is because of 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. This basically means that no taxes will required to be paid.
4Capital Gain Taxes
Additionally, U.S. capital gains taxes will always be applicable to a foreigner who is trying to sell his/her property. And thus a foreign seller will automatically have 10% of the gross purchase price of the property withheld by the U.S. Internal Revenue Service (IRS). However 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.
Originally posted 2017-07-15 01:35:53.