How can foreign investors avoid U.S. tax exposure

Real Estate Broker/Owner with Condoideas Realty Group

The Florida real estate market has exploded over the past few years. Most investors are foreign, and Florida is one of their favorite destinations, followed by California and Texas.

Foreign investors are attracted to Florida's real estate market due to its favorable climate, attractive beaches, strong rental demand, and potential for capital appreciation. Additionally, Florida's lack of state income tax and relatively low property taxes compared to other states can make it an attractive investment destination for foreign buyers.

It's worth noting that investing in real estate in a foreign country can be complex, and foreign investors should consider consulting with a qualified tax professional and real estate attorney before making any investment decisions.

Investors are subject to the FIRPTA – The Foreign Investment in Real Property Tax Act is one tax imposed on gains derived by foreign persons selling a property in the United States. This tax is calculated on the sale price. This tax can’t be avoided if a limited liability corporation owns the property.

There are several ways to minimize/avoid the FIRPTA when foreign investors sell:

  • Obtaining an IRS Withholding Certificate before the transaction via filling out a tax form to explain to the IRS that the sale will result in no gain or less than the FIRPTA withholding amount.
  • filling out form 8288-B which is an application for Withholding Certification for Dispositions by Foreign Persons of US Real Estate Property Interests and needs to be ready before the closing date.

In conclusion, those two ways to minimize the FIRPTA, but the best is to discuss it with a FIRPTA Tax advisor, and the advisor will give you the best strategy to minimize the U.S Tax exposure depending on your real estate assets.


Comments (2)

Roy Kelley
Retired - Gaithersburg, MD

This is good information to share with prospective home buyers.

Have a very productive spring.

Apr 17, 2023 08:41 AM
Jeffrey DiMuria 321.223.6253 Waves Realty
Waves Realty - Melbourne, FL
Florida Space Coast Homes

I always send my out of country buyers to a tax attorney first. Great post!

Apr 19, 2023 07:54 AM