If you are not a U.S citizen and you are planning to buy a property or a piece of land in a big city like Little Rock, Arkansasand move stateside, you are in luck. The real estate market in the United States is very convenient for foreigners, even though the market is very volatile. Real estate is one of the reasons why the 2008 recession happened. But the market is very friendly to foreigners who want to buy land throughout the country for investment purposes.
The United States government does not maintain any restrictions or put hidden charges like stamp duties, to foreigners who want to buy a residential real estate in the country. As a matter of fact, according to foreigners who experienced purchasing a property in the United States, it is as easy, if not easier to make a transaction in the United States compared to their home country. That being said, in this article, we will discuss the rules any foreigners need to remember if they want to invest a property in Arkansas or any other state in this country.
Do not look for Co-ops, look for Condos
Co-ops or cooperatives are intended to be a primary residence, and most corporations that own them are very active to block any foreigners from buying or owning a property in big cities like Little Rock, Arkansas. The reason for this is, they want primary owners to live in the property. If a foreigner owns it and they decide to leave the place at some point, they will most probably rent the place out, and it will increase transience in the property.
Co-op wants to avoid that. Not only that, the corporations that own these properties know that if they sell the property to a foreigner, in case there’s a legal procedure, the ability of the corporation to hold the foreign owners liable in court will be different than if they sell the property to a U.S citizen.
(To know more about Co-op in real estate, visit https://en.wikipedia.org/wiki/Housing_cooperative.)
If the owner is a foreigner, there’s a big chance that their assets are held outside the country. Even if they sue the foreign investor and won, collecting payments based on the court’s judgement when the assets are outside the United States is next to impossible. It is the reason why foreign investors who are looking for properties to buy, need to search for a condominium or individual houses. Co-ops are not an option.
They should offset expenses against income for United States income tax purposes
If you are planning to purchase a real estate property in the United States, you need to submit tax return documents at the end of every tax year. If you want to take advantage of the tax treatment that the IRS or the Internal Revenue Service allows real estate property investments, owners or investors should elect to offset all the expenses from income. All you need to do is to file a tax return and make a choice or “election.” If you forgot to file tax returns, the IRS would charge you 30 percent of the gross rental income.
It will have a significant impact on profits because you will be unable to deduct all the expenses you have made like depreciation, property taxes, common charges, interest and repairs. It is also important to know that because property owners can deduct depreciation or non-cash expenses, along with cash-based costing, you will be showing the IRS tax losses on paper. And that’s the reason why you will not own the government anything. But because you have tax losses, you need to file the tax return as soon as possible if you choose that election.
Prepare and plan everything to avoid Estate Tax
When a person owns a real estate property in cities like Little Rock, Arkansas, dies, they will be taxed at 46% of their overall estate. It is for Federal tax purposes. For U.S citizens, this will only apply to wealthy property owners. The estate is exempted for the first $11.2 million or $22.4 million if you are a married couple. But it is different with foreign investors.
(Click here to know more about Estate Tax in the United States.)
They will only get a $60,000 exemption for their estate, meaning that the foreign investor or owner of the property did not plan their estate before their death, it will result in hefty tax fines or worse, they will lose the inheritance of their heir. To avoid these hefty fines on taxes, foreign owners should use foreign corporations or companies based outside the United States to buy the property, instead of doing it individually, or using a Limited Liability Company to hold the purchased real estate property.