Fort Lauderdale Real Estate | Foreign Seller Tax Changes
In recent news, Congress has made notable changes to the U.S. Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Two of these changes bring benefits to the ever-resilient Fort Lauderdale Real Estate community. A third change carries significance for foreign sellers of particular properties.
According to Ralph W. Holmen, associate general counsel for the National Association of Realtors® (NAR), there is a positive side to consider. The new rules stand to make U.S. commercial property much more desirable and attractive to foreign investors. After all, the law makes it possible for a foreign investor to double the maximum amount of stock ownership they might have in a U.S. real estate investment trust (REIT) that is publicly traded. It shifts it from 5 percent to 10 percent. Also, specific foreign pension funds are permitted to invest in real estate investment trusts (REITs), minus the usual FIRPTA treatment.
Unfortunately, effective February 17, 2016, these FIRPTA rules make the withholding tax higher for foreign sellers of specified properties.
Holmen had additional information to share. “The recently enacted Protecting American Taxpayers from Tax Hikes (PATH) Act (H.R. 2029) includes two very positive FIRPTA provisions that are conservatively estimated to boost foreign investment in U.S. commercial real estate by $20-$30 billion per year. However, as part of a package of tax changes to ‘pay for’ the two provisions, Congress also included an increase in the FIRPTA withholding rate from 10 percent to 15 percent.”
How does new withholding work?
The FIRPTA law takes three property purchase levels under consideration. The first is a personal residence worth $300,000 or less. The second is a personal residence with a price over $300,000 that doesn’t exceed $1 million. The third and final level involves properties worth at least $1 million.
$300,000: If the Fort Lauderdale Real Estate purchased will be used as a place to live, foreign sellers won’t have to pay a FIRPTA tax.
$300,000-$1 million: As long as the property remains a residence, the 10 percent FIRPTA tax currently in place won’t change.
For more information about FIRPTA, click here: Florida Realtors®
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