I chose this topic due to the fact that a lot of things in it are unclear to the general public, and therefore many guesses and misunderstandings arise. The answer is generally positive: a foreigner can buy property in the US, but there are some peculiarities that such a buyer should know about. These are outlined below.
REQUIREMENTS OF THE FEDERAL GOVERNMENT
1. Visa. The fact that a foreigner owns real estate in the United States is not a reason for granting him / her a guest visa. Moreover, the ownership of real estate also does not guarantee the receipt of a working or permanent visa. What are the most attractive visas for foreigners?
В-1 (Business Visitor) – allows you to purchase real estate, sign contracts, etc .;
H1B (Temporary Professional Worker) – available to foreigners-professionals who work for an American company;
O & P (Extraordinary) – available to foreigners with outstanding talents in science, education, business, sports, etc.
E-2 (Treaty Investor) – allows living in the United States during active investments in an American company;
EB-5 (Million Dollar Investor) – available to foreigners who plan to make an investment of 1 million or more in an American company;
Every foreign buyer should be aware of the importance of the visa issue and, if possible, consult with an immigration lawyer.
2. Tax Identification Number. In order to become a real estate owner, a foreign buyer must receive an Individual Taxpayer Identification Number (ITIN). The Tax Service (IRS) issues ITIN to people who are required to have a US identification number, but who are not eligible to receive a Social Security Number. ITIN is issued to foreign nationals who have tax or other obligations to the federal government. To obtain ITIN, the applicant uses the latest version of the W-7 Form (Application for IRS Individual Taxpayer Identification Number) – a petition to the Tax Service to obtain ITIN, and together with the application, submits a certified confirmation of foreign origin and an identity card. ITIN is usually issued within 6 weeks.
It is also very important to know that if foreigners, during the subsequent sale of real estate, have neither ITIN nor SSN, then, according to the Foreign Investment in Real Property Tax Act (FIRPTA), they will be subject to 10% of income tax.
REQUIREMENTS OF LOCAL AUTHORITIES
1. Property Tax. This tax is usually charged twice a year and is based on the estimated value of the property. In California, real estate tax is limited to 1% plus local taxes approved by voters are required to finance schools, colleges, etc. In accordance with Proposition 13, real estate is revalued against the current market value only at the time of ownership change or completion of new construction. At the same time property tax can not exceed 2%.
2. Transfer Tax. This tax, also known as a document transfer tax, is charged at the time of completion of the transaction. The amount of tax is based on the estimated value of the transferred property. The county tax rate is $ 0.55 for every $ 500 value. Traditionally, the transfer tax is levied on the seller, which, however, is not the rule, since the seller and the buyer may be asked to divide this amount between them. In cases with a new build, for example, the developer requires that the transfer tax be levied on the buyer.
3. Capital Gains Tax. This tax arises at a time when the owner decides to sell his property, and the difference between the purchase and sale price is subject to taxation. There is also a tax exemption when owners sell their basic housing (they are allowed to earn up to $ 250,000 if the seller owned the property individually, and up to $ 500,000 for couples). Owners are also exempt from tax if they sell with a loss for themselves. In the case when the property was used for investment purposes, the usual rules for paying the tax are valid.
Now let’s look at other important factors that a foreign buyer should know.
ATTACHMENT OF THE RIGHT TO REAL ESTATE
1. Property in the name of the buyer. Not the best form of ownership regarding tax breaks, especially if real estate is an object of investment. Owners cannot write off many expenses, i.e. the maintenance of real estate becomes more expensive, and this can lead to the payment of the highest taxes. Owners are also responsible for unforeseen accidents on the property.
2. Real estate on a business. Tax breaks in this situation are significant, because now you can write off many expenses. For example, it becomes possible to indicate a fall in the value of own assets, which reduces tax liabilities. A form of ownership, like LLC (Limited Liability Company) – a limited liability company – seems to be the best in relation to other business entities, especially when it comes to real estate income. In any case, either the LLC or the corporation must have its own Employment Identification Number (EIN).
It is necessary to mention a few important points.
TRANSACTION REQUIREMENTS / DEPOSIT OF FUNDS IN ESCROW
As long as the seller is satisfied with the evidence of money held in a foreign bank, as a rule, the Escrow company has no special requirements for the buyer. Basically, a buyer who purchases real estate for cash is not required to submit a large number of notarized documents, and therefore everything that is necessary can be transferred to an Escrow company either by email or via FedEx, UPS, etc.
1. Proof of money / bank accounts. These documents must be issued by the bank, confirming the availability of the required amount on the buyer’s account either in US dollars or in an equivalent currency. Upon request, the buyer must provide the original of the latest bank account (copies are not accepted). The account must be on bank printed form, in English and must contain the following information: account number, name of the account holder, amount in currency.
2. Transfer of funds. Money can be transferred from abroad directly to the Escrow-company account. US law requires that all cash transactions in excess of $ 10,000 are filed to the federal government. These requirements apply to all employees in a particular transaction. This includes real estate agents, brokers, lawyers, lenders, etc.
3. Proof of foreign residence. It is mandatory to confirm the foreign place of residence: an overdue passport, the latest bill for utilities, a telephone bill, etc.
4. Credit for foreign buyers. Foreign buyers of real estate in the United States can apply for a loan to buy, and in a normal economic situation, there can always be suitable lenders. If the economy is difficult, many of these sources either disappear or they tighten credit requirements (a very high percentage of interest, etc.). Currently, obtaining a real estate loan for a foreigner is almost impossible. It may be easier to get a loan at the place of residence, and then buy property in the United States for the full amount.
So, what awaits a foreign buyer in the near future, after the purchase?
1. Rent. Part of investing in real estate and renting it out is finding a reliable property management company. Often, foreign buyers can not always be in the United States and therefore physically can not fulfill the obligations of the owner of the house or apartment rented. The use of a property management company should not be prohibitively expensive, but the problem may lie precisely in the reliability of the chosen company.
2. Compensation for property management. When opening a new account, usually $ 200- $ 300 is charged, and then 10% of the rent amount. Foreign buyers must find a company that will not charge compensation when the property is vacant. Also, owners should be aware of companies that charge weekly compensation for advertising, which is free for them (for example, placing ads on free sites with a subsequent attempt to collect compensation).
At the end of the article I want to add that the process of buying property in the US in relation to other countries is not difficult for foreign buyers. However, it is very important in such a process to find a reliable local real estate agent who can carefully and thoroughly conduct the entire transaction. To avoid possible mistakes, I recommend contacting an American real estate lawyer. I remind you that the law on real estate professionals is forbidden to give any tax or legal advice.