Patricia Tan Perspectives International Real Estate
Foreigners Investing in Florida Real Estate
A Taxing Issue?
By Patricia Tan
Winter was a very busy buying season for Florida real estate – the best we have seen in many years. A large part of the sales activity was down to foreign investors – those whose real home is outside the United States, looking to take advantage of our State’s low property prices and buoyant rental market.
The end of winter also means tax deadlines are looming and it occurred to me that in working with foreign investors, I am often asked questions about how they will be taxed by the U.S. tax authorities. Many investors come here with “knowledge” of our tax system they have gleaned from the internet, friends and relatives. Part of my job as an international realtor is to ensure they maximize their investment potential here, and to do that I need to encourage them to look beyond the “buy-low-sell-high” mantra and what they think they know about U.S. taxes. I advise them to seek the advice of a tax professional.
One such professional is Renea Glendinning of the Sarasota CPA firm, Kerkering Barberio & Co. She and I regularly work together and give educational seminars to people overseas who are looking to buy real estate in U.S.A. So who better to turn to as I thought about writing this article? The tax information below is based upon one of the many articles Renea has written on this subject
While it is most beneficial to consider tax strategy before buying a property, it is never too late, and I hope the information that follows will be of benefit to those who already own rental property here, as well as those just considering a purchase.
U.S. Income Tax Reporting on Rental Income for Nonresidents
When a nonresident individual owns rental real estate in the U.S., there are two alternatives for reporting and paying U.S. income taxes – filing an income tax return or not.
If an investor chooses not to file an income tax return in the U.S., they (or their property manager) must remit 30% of the gross rental income to the Internal Revenue Service. Simple, but certainly not the most tax efficient strategy.
Most nonresidents choose to report the rental income on a U.S. income tax return, Form 1040NR. They report the rental income received and all expenses associated with the property, as these are deductible against the rental income. These expenses include property taxes, mortgage interest, repairs, etc. In addition, a calculated amount for depreciation is also deducted. Many owners do not have any taxable income after taking into account all of the deductions that are available. If there is no taxable income, then there is no tax to pay. In addition, any excess expenses accumulate, carry forward indefinitely and are available to offset profit on sale.
It’s not too late. The tax year is based on the calendar year and the tax returns are due no later than June 15 of the year following the tax year. So as you read this article, you may still have time to make changes for 2012 tax year!
Patricia Tan was born in England, and her career in international sales and marketing led her to live and work in many countries around the world before moving to Sarasota in 1997. Patricia is a Certified International Property Specialist (CIPS), Graduate Realtor Institute (GRI), and Transnational Referral Certified (TRC). She is involved in global activities of the Sarasota, Florida and National Association of Realtors, and currently serves as NAR President’s Liaison to U.K. Her real estate business operates from Coldwell Banker on St Armands Key, where her focus is to bring international buyers to the local market. She regularly makes marketing trips to Canada, Asia and Europe, to promote Florida’s Gulf Coast and the Sarasota area in particular. Patricia may be reached at 941-504-9232 or Pat@PatriciaTan.com.
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Tags: International, Kerkering Barberio, Patricia Tan, Renea Glendinning