There are many foreign investors interested in purchasing property in the New York area, which is great for the real estate industry. However, before attempting to purchase a real estate property, a purchaser should be aware of the following before she/he makes an offer.
First, Estate Tax Consequences.
There will be a difference in the terms of Estate Tax. If it is a foreigner who is neither a US citizen nor permanent resident, i.e. green card holder, he or she will be subject to hefty federal and state estate taxes, which means the property cannot be sold unless the estate pays off the estate taxes within 9 months after the death. That is something that any foreign purchaser should be aware of.
Second, Federal tax deferral program does not apply to foreigners.
For any foreign investors purchasing property in New York, there are no restrictions as to how many properties or what type of property they can buy. However when foreigners try to sell the property in the future, they are not eligible to utilize the federal tax code IRC Code Section 1031 which is called Section 1031 Exchange. This tax code is to benefit investors who are selling the real estate property for a profit. They do not have to pay capital gains right away, if they can purchase another real estate investment property and close the title within 180 days. However, this tax benefit rule does not apply to foreigners. Any foreigners making an investment in the United States should be aware of that.
Third, Capital Gain Tax.
A foreign seller has to file federal capital gain tax at the Closing, no matter whether the sale results a profit or a loss. A foreign seller will have to pay a federal capital gain tax of 10% of the selling price to the US Treasury. At the end of the year, when the foreign seller prepares his personal tax return, he will be able to get back any amount overpaid, or pay any balance due on the personal capital gain tax. This is quite different from a domestic seller.
There are a lot of benefits for foreigners purchasing property here, especially in the New York City area because the property value is booming, the rental income is pretty stable and with the higher demand for inventory in the future, it is foreseeable that the property value will continue to increase. Each foreign individual, however, should thoroughly discuss the pros, the cons, and the tax consequences with their real estate attorney and accountant before they make an offer or sign the contract.
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Jacqueline Huang Huang & Associates, P.C. 6402 8th Avenue, Suite 405 Brooklyn, NY 11220 Telephone: (718) 435-666 Email: jackiehuang@huanglawfirm.com  |
