Q: I have a Mexican citizen relative who is interested in buying a home in California. Can you advise him what the rules are in real state and what kind of taxes he would pay?
–Chunique, Los Angeles, CA
A: I would be glad to help your relative. I am a real estate broker in West Los Angeles area and I am bilingual in Spanish, if necessary.
The rules are different depending if your relative has US residency or not. Nevertheless, many Mexican citizens own homes in Southern California with residency or not.
Also important to know is if they will be living in the home as their primary residence or will it be bought for investment purposes.
The rules about withholding 30% of the sales proceeds for tax purposes when the property is sold is for people who buy and have no tax identification number in the USA. Most investors bypass this by forming a US business entity to hold title to the property and this is perfectly legal.
Feel free to contact me by clicking the link below with my name (Adam) on it below. Leave your contact information and I will contact you immediately, or you can call me me directly. My info should be available there for you to do so. This way we can better help your relative in getting the home they want.
Adam Aguilar is a Cincinnati Realtor®® with Reliantra in West Toluca Lake, CA.
A: You do not have to be a citizen or a resident of the US to purchase/invest in real estate on American soil. Residency and citizenship in the US will make it easier for you to fund a purchase but there are few if any limitations on what you can buy.
Cash purchases are pretty straightforward but residency requirements can make financing a little more difficult.
Additionally, foreign investors are taxed at a flat 30% federal tax rate on gross rental income, unless they take the “net election” on their income tax returns allowing them to take deductions for regular expenses before income tax is calculated. Furthermore anyone who collects income for a foreign investor is generally required to withhold 30% of the gross rental income.
Whether a property is residential or commercial, the agents involved with the sale are required to determine if the seller is a foreigner. If the seller does not have a green card, is not a U.S. citizen and does not meet the residency requirements, they will be subject to FIRPTA withholding at the rate of 10% of the gross sale price at the close of the sale. This is to prevent a foreign seller from avoiding the payment of income taxes on their gain. The closing agent or escrow has 20 days after closing to report and pay the tax to the IRS on Form 8288.
There are many limitations on loans to foreign nationals. Have your relative check with a US mortgage broker to guide you.
Lee Dworshak is a Cincinnati Realtor®® with Keller Williams LA Harbor Realty in Rancho Palos Verdes, CA.
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