Tax advice

What are property taxes?

The Property Tax is a wealth tax on land and real estate. Since the State of Florida, its districts and communes do not collect income taxes, they are required to obtain income in another way. Taxes are mainly collected by cities.

Depending on the connection of the land, estate taxes between 1.75% and 2.00% annually can result in Miami-Dade County. Others for thousands of taxes can be collected for a limited time by the tax authorities, individual for special investments (Special Assessments); The Assessed Value of the property, which is established by the County of City Tax Appraiser, is used as the basis for calculating taxes.

The estate tax is collected once a year, regardless of the residence status of the owner.

When and to whom is this tax paid?

In general, the payment of this tax can be made from the first of November until the 30th of March. Counties offer discounts for those who pay in November and would already consider a late payment on April 1st.

Payments are made directly to the county in which the property is located, and most allow you to do so online, which is great for those out of the country.

Tax on foreign investment in real estate (firpta)

What is the FIRPTA?

It stands for the Foreign Investment in Real Property Tax Act of 1980.

Who is affected by FIRPTA?

FIRPTA affects any nonresident alien individual and foreign companies not considered domestic corporations. From the tax point of view (tax return) when a non-resident person or a foreign corporation or partnership sells property within the United States, it will be subject to the provisions of FIRPTA.

How does it affect?

At the time of protocolization (transaction closing) the seller will be subject to a 10% retention on the sale price, in transactions below $1,000,000 and 15% if the sale price is above $1,000,000. For example, a “foreign investor” sells property for US$350,000, the closing agent of the transaction (company or lawyer that handles the title) will hold US$35,000 in a special account called an “escrow account”, until the “foreign investor” files its income tax return in January of the calendar year following the closing of the sale.

What is the difference between Withholding and Tax?

Withholding is the mechanism by which the Treasury (IRS) “forces” the foreign individual or company to file their return to determine if there is a profit or loss in the transaction.

Once the declaration is made and the IRS determines the amount to be imputed as tax, the difference between the withholding and the tax is reimbursed to the seller.

Can this retention be avoided?

It is very important to give adequate attention and planning to this point, so that there are no negative surprises at closing time.

Buying in a personal name or in the name of a company is one of the most important elements in the Firpta application. However, it is not only the type of legal structure but also the internal constitution that could make the difference. On the other hand, Firpta is only one of the factors to take into account, therefore, it is extremely important to know the advantages and disadvantages of the different purchase structures (LLC, S-Corp, Trust, Inc, etc)

How does it affect buyers?

As a buyer, you must ensure that withholding is made in the event that the seller is a “non-resident foreign individual or foreign company not considered a national corporation” otherwise you could be responsible for paying that withholding.

How do I recover the amount withheld?

In this case, you must hire a real estate attorney or a certified public accountant who can fill out the appropriate applications and obtain the individual Taxpyer Identification Number (ITIN). The ITIN is a number assigned by the IRS for those individuals who do not have a social security number to see if the seller receives a portion of the withholding since the actual tax liability is not known at the time of closing.

After submitting the applications and returns to the Internal Revenue Service (IRS), the application process can take up to 90 days.

LEGAL NOTE: The provisions of FIRPTA are complicated and require the expertise of a real estate attorney or CPA who can complete the proper applications and assess the potential implications. At no time should this information be taken as advice.