Top tips for foreigners investing in US property

Buying in Miami? Understand basic real estate practices, says Oryx World Portfolio

In the current US property market, buying property can be a daunting process for Americans and even more so for foreign investors. It therefore pays for overseas buyers to understand both the buying process and basic real estate practices, many of which will differ significantly from the investor’s home country. Oryx World Portfolio sets out the key, need-to-know points.

Trust in transparency
The US property market is very transparent. Unlike other countries, where buyers must meet multiple agents to find a property, in the US, all sales listings must be posted to the listing service within 24 hours so they are accessible to all agents.

Elect to pay income tax
By law, foreign buyers must elect to pay US income tax on any net income from rental property. If income tax returns are not filed on time, the US government may apply 30% tax of the gross rental income. Even if the overseas investor is incurring tax losses and is therefore not required to pay tax, they must still file their tax returns and make the election.

Make a large down payment
Overseas investors who make a 40% to 50% down payment will likely be excluded from paying income tax on the net rental income for up to 15 years. As mortgage interest, property taxes, insurance and depreciation of the asset over 27.5 years are all deductions against income, in the first few years the property will amass negative taxable income. In subsequent years, when it generates taxable income, this can be offset by the previous year’s negative taxable income. This means zero income tax for many years.

Close the deal from overseas
As the purchase is being finalised, the new owner is not legally required to be in the US. By giving power of attorney to a trusted representative, overseas investors can remain outside the country while the deal is closed on his or her behalf.

File all tax returns
When a foreign owner sells his or her home, the Internal Revenue Service (IRS) keeps 10% of the gross purchase price to ensure it receives capital gains tax. When the seller files the tax return, the IRS will refund any money that’s due.

For details on Oryx World Portfolio property investments in Miami or further afield, please call +971 (0)4 446 2000.