Commercial Real Estate & Foreign Investment

Property in FloridaCommercial real estate can be a valuable investment which can provide good returns. Different types of owners can purchase Florida commercial real estate. Such owners include individuals, partners, married couples, LLCs, corporations and other types of businesses.  If you are purchasing a property in Florida to rent out or to use for your business, then it may be a good idea to setup a Florida LLC or corporation in order to purchase the property. There are various advantages and disadvantages to doing so; however, regardless of the transaction the most important aspect of a real estate transaction is the drafting of the agreement.

The Foreign Investment in Real Property Tax Act & Potential Liability

If you are purchasing a Florida property, then it is important to know if the seller is a foreign seller.  This is important because if you are a buyer purchasing a property from a foreign seller, then you will most likely be subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

In a FIRPTA real estate transaction, 10% of the sales price is withheld from the sellers’ proceeds by the IRS until their tax return is filed the following year. The reason behind FIRPTA is to ensure the foreign seller pays the taxes on the proceeds for the property. Before the enactment of FIRPTA, the federal government had no procedure to ensure payment of these taxes.  This is because many foreign sellers of real estate had no further connections to the US other than their property.

It is ultimately the buyer’s responsibility to ensure proper conduct of the FIRPTA real estate transaction. If the buyer does not properly conduct the FIRPTA process, then the buyer may be liable for the unpaid taxes.

A licensed attorney can be very beneficial to any real estate transaction.  Whether it is during the negotiation period or the executory period, an experienced attorney can significantly reduce the risks associated with purchasing commercial property.  Please contact us if you have any questions regarding the purchase or sale of commercial property.  We look forward to assisting you.

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