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Old Aug 28th 2010, 5:20 pm   #1
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Default Buying and selling in Florida-Foreigner's Tax?

Hi.
I've been in Florida for just over 2 years and and until now have been renting, my husband is here with his job on an L1 visa which runs out next march and which is going to be extended for another 3 years, we rent our house in Wales, UK as we couldnt sell it. we,ve never really considered buying here but as we are going to be staying a while we thought it would be nice to maybe look at the option of buying our own home.
We were told yesterday (on visiting a short sale property) that when we sell the property we would have to pay a 10% Tax (as a foreign national) on top of capital gains tax and obviously with the 6/7% commission fee and all the other bits and pieces we could be looking at a closing cost of around $60/70K!!!
Is this correct? (the house price is around $300K) I,m doubtful we would make very much on the property but did think maybe just enough to cover our costs but $60-70k is a very different matter........
I would be interested to hear if this definitely applies as it seems a bit cruel when we are here helping the US economy A) my husband is bringing in a lot of money into the state each year and B) buying a property in the state.
Thanks in advance for any advice.....
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Old Aug 28th 2010, 6:07 pm   #2
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Default Re: Buying and selling in Florida-Foreigner's Tax?

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Originally Posted by meg67 View Post
Hi.
I've been in Florida for just over 2 years and and until now have been renting, my husband is here with his job on an L1 visa which runs out next march and which is going to be extended for another 3 years, we rent our house in Wales, UK as we couldnt sell it. we,ve never really considered buying here but as we are going to be staying a while we thought it would be nice to maybe look at the option of buying our own home.
We were told yesterday (on visiting a short sale property) that when we sell the property we would have to pay a 10% Tax (as a foreign national) on top of capital gains tax and obviously with the 6/7% commission fee and all the other bits and pieces we could be looking at a closing cost of around $60/70K!!!
Is this correct? (the house price is around $300K) I,m doubtful we would make very much on the property but did think maybe just enough to cover our costs but $60-70k is a very different matter........
I would be interested to hear if this definitely applies as it seems a bit cruel when we are here helping the US economy A) my husband is bringing in a lot of money into the state each year and B) buying a property in the state.
Thanks in advance for any advice.....
I've never heard so such a thing. Since you should be currently paying your taxes as a resident alien, you should be getting all the tax benefits and disadvantages of a US citizen or LPR which includes taxation on worldwide income, a $500,000 capital gains exemption on the sale of your primary residence (if you lived in your home for 2 of the previous 5 years), and mortgage interest and property tax deductions.

The only thing that I can imagine about a 10% tax would possibly be a withholding tax for someone who is a non resident. However, non-residents can be treated as non-taxable on investment income made in the US by filing form w-8ben (not sure it that applies to stock and bond investments only).

Just to be sure you should get the opinion of a tax accountant or hopefully Peter Newton will come along on this site.

Edit: It appears the 10% is a withholding tax (can be gotten back when taxes are filed) for foreign nationals but it may possibly not apply to your situation if the house is sold while you are still in the US and a resident alien or was your primary residence with the $500,000 capital gains exemption. The withholding is in the law to make sure that a foreigner who possibly owes US taxes won't skip out without paying taxes.

http://www.aaronline.com/documents/firpta.aspx

Another exemption is a transaction involving the transfer of a property acquired for use as the buyer’s residence and the amount realized (purchase price) does not exceed $300,000. 26 U.S.C.A. §1445(b)(5). Under certain circumstances, a seller may obtain a "qualifying statement" from the IRS stating that no withholding is required. 26 U.S.C.A.§1445(b)(4).

I think the major issue would be if you sold the house after you left the US. Would you still be eligible for the $500,000 tax exemption as a non resident or would you still be eligible for the exemption as long as the house was sold during the year you were a resident? So it appears that the worst case scenario would be that you were not eligible for the $500,000 tax exemption, 10% of the selling price was withheld, and you filed US taxes on the capital gains and got back the majority of the tax withheld.

Last edited by Michael; Aug 28th 2010 at 7:48 pm.
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Old Aug 28th 2010, 6:11 pm   #3
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Default Re: Buying and selling in Florida-Foreigner's Tax?

We were told that this week too (by our tax accountant). Apparently the law was brought in sometime in the 1970s and has stayed ever since.

And another edit...
I see this was addressed in your other post. In our case it's because of the mortgage (and paying it off) there's some 10% tax you have to pay. It was explained to me properly but I was too busy thinking of what I would like to do to whoever came up with the law and how much pleasure I would gain from it. Apparently it can be offset by something else (I forget now, sorry)

Last edited by Hubcaps; Aug 28th 2010 at 6:18 pm. Reason: adding more guff
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Old Aug 29th 2010, 6:00 pm   #4
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Default Re: Buying and selling in Florida-Foreigner's Tax?

Quote:
Originally Posted by meg67 View Post
Hi.

We were told yesterday (on visiting a short sale property) that when we sell the property we would have to pay a 10% Tax (as a foreign national) on top of capital gains tax and obviously with the 6/7% commission fee and all the other bits and pieces we could be looking at a closing cost of around $60/70K!!!
Is this correct?....
Presumably you are referring to the Withholdings Tax for being foreign nationals.

Your best bet is to ask a title/closing company, your accountant too etc etc etc.

Every place is different but the same premise probably applies. For eg, Withholdings may occur if you are moving out of state or overseas. For CO, its 3% if you're moving out of state, 10% if you're moving overseas. Basically, they withhold some of the proceeds to ensure your taxes are covered incase you try to do a runner.

Another thing you want to ensure that you don't have any use tax or transfer tax in the area you plan to live and sell. That sort of tax is typical in resort areas of Colorado.
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Old Aug 30th 2010, 5:04 pm   #5
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Default Re: Buying and selling in Florida-Foreigner's Tax?

It sounds like they are referring to the withholding tax requirement for foreign nationals... it wouldn't apply in your case if you're resident in the US for tax purposes and the gain is excluded anyway because you are selling your principal residence.
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Old Aug 31st 2010, 2:59 pm   #6
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Default Re: Buying and selling in Florida-Foreigner's Tax?

Thanks so much for all your advice so far.we are looking into it.
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