If there is ever a market that is always soaring and nothing dissuades it except a natural or human catastrophe, then it is the ever consistent real estate market in the USA. A wise and a smart person with money to invest will always aim to buy a property there and if they already have one, then their next order of business will be to sell it at a profit. But that only happens when they are doing everything right and are aware of the legal requirements of the action. If you are a foreigner selling property in USA, the rest of this article is going to help you loads. As a matter of fact, just read it and by the end, you’ll be a pro foreigner selling property in USA.
How the U.S. Real Estate Market Works:
Before treading on a path, you must first find out where that path leads. Similarly, if you invested in real estate properties in one of the states of America and now wish to sell it to earn your keep, you must navigate through the U.S real estate market and find out how things are done there. Don’t expect the same system that is established in your home country to be in USA as well. Here is what you need to know as a foreigner selling property in USA:
- The virtual world is highly developed and when dealing with properties, all you need to do is put up your property on sale and the buyers will automatically find about it through conducting internet searches. Assistance from real estate agents is no longer a necessary part of house selling.
- In case you did hire an estate agent, your buyers will come to you in numbers, providing you with a number of options. It is simply because unlike elsewhere in the world where both parties pay a commission to the estate agent, in the USA, the seller alone will have to pay the commission.
- Another way in which the United States real estate market stands out is the way in which real estate agents operate there. The law requires legal licensing by the agents before they are allowed to start practicing which not only saves everyone’s time, but also makes the process of dealing with properties a straightforward one. Each state has different procedures and details yet each involves special requirements and specializations for the agent before they get the certificate.
- A foreigner selling property in USA will also have to be mindful about the currency exchange rates. The foreigners will have to be careful about the fact that they are not dealing in the same currency so that they don’t face losses. They also need to arrange for cash dealings with the help of banking systems and take care of other financial issues, such as taxations and wire transfers.
Common Pitfalls That Should Be Avoided By the Foreigners Selling Property in USA:
Some of the states and countries in the USA are major hot spots for real estate market and eventually, they become so prominent that all the investors, foreign or otherwise, begin to high-tail it there. One such example is Florida. The excellent weather conditions, easy-go living, and other conveniences has made it a major real estate market where properties sell like cake. Unfortunately, many sellers and buyers fall victim to carelessness and end up succumbing to pitfalls. Let’s have a look at what the pitfalls are that a foreigner selling property in USA should steer clear of:
· Title of the Property:
It is one of the most confusing matters of concern for the foreigners when buying and selling properties. It is perplexing to decide who should be named as the owner of the property. The solution might seem like a no-brainer because, obviously, the property should bear the title in the name of the buyer himself, which in this case, would be the foreigner. However, in reality, things are hardly ever this simple.
On one hand, naming the property in the name of the foreign owner is a good thing so that he/she will be able to sell it at a good price, and the tax on the capital gains will only be 15% on the condition that the foreigner selling property in USA has waited for at least a year before doing so. But on the off-putting side, if the foreigner selling property in USA dies while the property is still in his/her name, then according to the laws and regulations of the USA, the value of the property will be subject to nearly 45% tax deduction, maybe even more, upon his/her death.
However, permanent citizens and green card holders will not be subject to the same law. They can even pass on their property to their next of kin upon their death without bearing the grunt of high rates of taxes.
· Tax Identification Number (TIN):
A foreigner selling property in USA must apply for a TIN number. Acquiring a TIN number in the USA is pretty easy. For this, a W-7 or W-7SP form will have to be filled by the property owner to begin the process. Upon selling the property, the buyer or an estate agent will demand a TIN number. Incase the foreigner selling property in USA fails to produce it, this will eventually result in the loss of interest of the interested parties.
· Fake Non-Foreign Certificate:
There are instances when the Non-foreign certificate produced by the seller can be false. As a result, everyone involved in the transaction will be held for criminal penalties. So, make sure you verify that the seller is genuine or not.
Different Types of Real Estate Properties Foreigners can Buy for Selling:
Foreigners selling property in USA can deal from among a wide selection of real estate properties present in USA. Selling properties in the USA can help sellers gain good profits if they have invested their money in the right property. It might seem like single houses and apartments are their only option but in truth, there are a number of real estate properties which foreigners selling property in USA can invest in. The following are these properties:
- Plain lands in a prime area with no bricks laid and no construction on them is also considered a property, and a very profitable one at that! Properties like these are always in demand by the constructors and since their rates are always rising, it ends up being a good investment.
- Another type of real estate property is referred to as a duplex, triplex and quads. They are actually several units in one property and can be sold to not one but several families at once. Hence, there is more profit generated by selling such a property. Foreigners selling property in USA can even occupy one of the units in the duplexes for their own use.
- People who want to be foreigners selling property in USA must start low to understand the procedures and to practice in the investment business. Fortunately for them, mobile homes are one of the best opportunities for rookies. Investing in mobile homes will help them get the lay of the land and understand capital gains, cash flows, payments, and FIRPTA without risking investing a bigger amount.
- If we have to choose a real estate property that makes the best profit for foreigners and natives both, it has to be a commercial property. The rates of commercial properties increase the most, even more so if business in and around the commercial property is prospering.
- Industrial properties are other kinds of properties which foreign investors can buy and earn a good keep on selling it. These properties attract buyers who are willing to run a manufacturing business there, and they usually pay good prices for them.
- If all the good looking properties are off the market, there is always RV parks, farming lands, and motels to buy. They are very much needed by people, and foreigners selling property in USA can gain a good profit from selling them.
As profitable as all these properties are, foreigners selling property in USA must make sure to do everything legally. They must pay capital gains tax, income taxes, and apply for FIRPTA; only then will their profit will be worth it and will also open many more doors of opportunities for them.
Frequently Asked Questions by Foreigners Selling Property in USA
A foreigner might be dealing with properties in the USA but that doesn’t mean that they are well-versed in everything related to it. There are some questions that most foreigners end up asking when they are considering selling their property. Here are some of the most frequently asked questions (FAQs) asked by foreigner selling property in USA:
· Can A Foreigner Buy Property In The US?
One would have to buy a property first in order to sell it. So, those who are stepping in this direction for the first time always find themselves asking whether they are even eligible to be a buyer and seller of a property in the USA. The answer is quite obviously yes. Buoying is easy too. As long as the foreigner goes through all the necessary requirements and abides by the needs of the government, they can buy whatever they want and wherever they want. Admittedly, it is much easier for foreigners to buy a condominium and sell it as compared to other forms of properties. In fact, aiming to buy a corporate property might be a tad bit difficult as it is solely based on the seller’s decision to sell to a foreigner or not. They can be rejected without any reason.
· When Selling A Property In New York City, What Taxes Does A Foreigner Need To Pay?
We might be talking about all the states of America, but New York has some of the most hottest locations and an even better real estate market. This means that most foreigners selling property in USA show interest in buying a property in New York, which leads us to this question. Since New York is one of the prime locations in the USA, people naturally believe that the taxes there will be high. However, the taxation system here is more or less the same as anywhere else in the USA. A foreigner selling property in USA will have to pay their share in gains tax and FIRPTA withholding tax. The federal gain tax rate is 15% of the total capital gain, whereas non-residents will have to pay an additional tax of 8.82% as New York State charges.
· What is FIRPTA?
Not many foreigners understand what FIRPTA is, which leads us to answer this question. FIRPTA (Foreign Investment in Real Property Tax Act) refers to the US’ policy of charging foreigners selling property in USA to pay a withholding tax. When foreigners selling property in USA earn profit upon selling their property, they become liable to pay taxes at the rate of 10% which is charged on the gross sale price of the property. The IRS is the recipient of the withholding tax and should be paid within 20 days after the closing date of the sale. A special consideration is given to the sellers who have made timely payments of all of his/her taxes, like capital gains and income taxes. These foreigners are given a refund of 10% of the withheld amount from their sales. The point of holding this specific percentage of fund is to ensure that the foreigner selling property in USA paid all the taxes that were due. Once it has been confirmed that they have indeed paid all their liabilities to the government, they can apply for a refund through any of the following procedures:
- In case they rented their property before selling, foreigners selling property in USA can file all the tax returns of each rental year. After filing all the incomes and taxes, they can report it and wait for their refund. This can take up to 18 months
- Another method of claiming your refund is by filling form 8288-B. This method is one of the most preferable and common ones in which the foreigner selling property in USA requests to get exempted from the withholding tax entirely by presenting all the documents that prove that the seller has indeed paid all their taxes and their tax returns. In this scenario, the specified percentage of withholding tax remains in the custody of the closing agent and when the IRS approves of the funds paid, the withheld amount is returned to the foreigner selling property in USA within 90 days of the closing date.
For following the above procedures, a foreigner selling property in USA must attach the following listed documents with their forms to apply for the refund.
- Prior year’s tax returns
- Receipts of repairs and upgrades
- Receipts and invoices of furniture
- Settlement statements from purchase of property
- proofs of income received and expenses incurred
- US tax identification number (TIN)
- Passport pictures
What A Foreigner Needs To Do When Selling Property In The USA:
A buyer will never make deal with a foreigner selling property in USA if they do not have complete documents and other legal credentials when selling. Therefore, the foreigner selling property in USA must contain the following:
· Tax Identification Number (TIN):
We have already established the importance of a TIN for every tax payer, whether foreigners or natives. Now, we’ll discuss how to acquire them. The population of the USA is large and then, there are foreigners who are investing in properties. Therefore, to make the process simpler, the IRS has established a straightforward method of assigning a TIN number, which is similar to the Social Security Number (SSN) that every US resident owns. These identification numbers are then used to track the tax history of every individual. To apply for a TIN number, the foreigner selling property in USA must fill the W-7 form that can be downloaded from the official webpage of the IRS and can be submitted to them. Foreigners can find a US consular office in their own country and submit the form to them as well.
- US tax Filing due Dates and Obligations:
A foreign buyer and seller of a property in the USA is hard to track down by the IRS since he/she is not residing in the States themselves. But since it is compulsory for them to pay all their taxes on their earnings they have made on US soil, FIRPTA and the IRS has to make sure that they haven’t been short-handed by the foreigners selling property in USA. As a result, they have made it obligatory for the sellers purchasing from a foreigner selling property in USA to file IRS form 8288 within days of the closing date of the sale transaction. In addition to this, a foreigner selling property in USA too will have to file all their documents that we mentioned earlier.