Foreign Investors Selling U.S. Property – What Are The Rules?

By Colleen B. Sullivan

Many foreign investors are inquiring about how their foreign tax status will affect their sale of U.S. property.  The answer to this question is…it depends!

Foreign investors may be subject to a tax when selling real estate located within the United States. This tax is imposed by the Foreign Investment in Real Property Tax Act (“FIRPTA”). FIRPTA requires any “foreign person” (a term that includes foreign companies, or certain U.S. companies owned by foreign persons) selling property located in the U.S. to file a tax return and pay taxes on their gain. The closing process facilitates this requirement, making the Seller’s choice of real estate and tax professionals an extremely important decision.

Who Owes What?

Because a foreign person may not have any current or future assets in the United States for the IRS to claim, FIRPTA makes it the responsibility of the Buyer purchasing the property to withhold Seller’s funds. This is an extra protection for the IRS to guaranty that the FIRPTA tax is paid when due.

It is important to note the actual tax owed is not necessarily the withholding amount. The Seller’s withholding amount is an added protection which guaranties payment of the Seller’s actual tax due. At closing, and after the proper forms are submitted to the IRS, a certificate stating the actual tax obligation is provided to the Seller, and the funds are applied accordingly. The actual tax obligation is often significantly less than the withholding requirement. As a result, FIRPTA withholding can have a major impact on the closing process for a foreign seller. Because this is a complex requirement, this withholding should be handled by an experienced closing agent.

Getting Married or Divorced? No More Taxes on your Marital Home!

By Dane Leitner

In its last spring session the Florida Legislature revised a law for inter-spousal transfers of homestead property.  Section 201.02, Florida Statutes imposes documentary stamp tax on most conveyances between spouses if there is an underlying mortgage.  So, in Florida, when you get married and want to transfer property (add your spouse’s name to your home), a documentary stamp tax or “real estate transfer fee” is applied to the unpaid balance of the mortgage.  The Florida documentary stamp tax rate is $0.70 per $100 paid for the property, in all counties except Miami-Dade.

For example, if the husband owned the property prior to the marriage, then added his wife once married, and there was a mortgage balance of $400,000.00, the Department of Revenue would collect documentary stamp tax on half of the mortgage balance.  In this example the taxes would be around $2,800.00.

Previously, there was an exemption for the conveyance of the marital home when the parties divorced and the property was transferred.  However, there was no such exception if you wanted to add your spouse once married.  In 2018, the Florida Legislature amended the statute providing an exception for inter-spousal conveyance of homestead property if the conveyance was completed within one year of marriage.  While this was a good change, it only applied to parties that were getting married in the future, and as long as they conveyed the property within one year of the marriage.

Reverse Mortgages: Helping or Hurting Seniors?

By Michael J Posner

Recently an editorial published in USA Today on June 13, 2019 (read here: tinyurl.com/y36lvwjp) basically viewed reverse mortgages as simply predatory lending designed to steal seniors’ and the heirs’ homes without any benefit or knowledge.  As a board-certified real estate attorney and Florida HUD Commissioner who has seen and dealt with many reverse mortgage foreclosures, I do not agree with this perspective for a number of reasons explained below.

First, the editorial fails to clearly discuss several important facts:

1. Without the loans, many seniors would have been forced to sell the homes anyway, due to the inability to pay maintenance costs (such as major structural repairs, and roofs), existing loans (which may be burdensome), or taxes and insurance;
2. No one forced these seniors to take the loans and spend the money they received, even if spent frivolously;
3. A majority of foreclosures occur not due to defaults relating to non-payment of taxes or insurance, but due to either abandonment of the home (residing in the home is a condition of getting and keeping the loan) or death;
4. Claiming that the heirs lost out on getting the home due to the reverse mortgage is a false premise, because it presupposes that the heirs deserve the home even though their parents needed and got to enjoy the benefits of the reverse mortgage money; and
5. Many foreclosures occur simply because reverse mortgages were granted before the crash, and the monies given were based on a higher pre-crash value. Combined with the accrued interest over 10 to 15 years (a key to how these work, seniors pay nothing during the term of the loan), and all the costs of sale (as high as 8% for real estate commissions, taxes, transfer taxes and title insurance), there is little to no equity left to interest the heirs or the estate to consider selling the properties.

Stay in the Know: 2019 Business & Real Estate Changes to Florida Law

By Michael J Posner

Each spring, the Florida legislature meets to debate and consider possible changes to Florida law.  This year’s session was highlighted by a new Governor and the lawsuits surrounding smokable marijuana.  A total of over 1800 bills were introduced and less than 200 were passed, a 20-year low for new legislation and a passage rate of only about 10 percent.  New bills covered a wide gamut of issues, and will begin going into effect this July, including the new ban on texting while driving. There were also a number of bills related to real estate and business that included the following:

Utility Companies Storm Protection Plan

1. A new utilities bill requires public utility companies to prepare and submit storm protection plans to deal with future issues and provides a mechanism for cost recovery (Section 366.96, Florida Statutes).

State Highway Expansion

2. A bill contested by environmentalists but heavily supported by the Governor was the expansion of the state highways system to include (a) Southwest-Central Florida Connector, extending from Collier County to Polk County; (b) Suncoast Connector, extending from Citrus County to Jefferson County; and (c) Northern Turnpike Connector, extending from the northern terminus of the Florida Turnpike northwest to the Suncoast Parkway. (Section 338.2278, Florida Statutes).

A “Game of Thrones” War Over Expert Testimony in Florida

By Jason E. Handin

A struggle has been brewing in the State of Florida for the last six years akin to the power struggles in the popular HBO^® show, Game of Thrones.  On May 23, 2019, the Supreme Court of Florida most recently changed Florida law requiring compliance with the Daubert standard when determining admissibility of expert testimony in Florida courts, which is the third time the standard has been changed since 2013.

When proceeding to trial in a lawsuit, there are two types of witness testimony.

1. The first type of testimony is lay witness testimony, which is testimony based upon what the witness personally perceived and which does not require any special knowledge, skill, experience, or training, as set forth in Florida Rule of Evidence 701.
2. The second type of testimony is expert witness testimony. An “expert witness” is defined by Florida Rule of Civil Procedure 1.390(a) as “a person duly and regularly engaged in the practice of a profession who holds a professional degree from a university or college and has had special professional training and experience, or one possession of special knowledge or skill about the subject upon which called to testify.”  In many lawsuits, testimony offered by qualified expert witnesses can be the sole factor that changes the outcome of trial.

The impact and weight of expert testimony—as well as opinions on what is the proper standard—has caused a split between two out of three of the Florida state government’s independent branches: the Florida Legislature and the Supreme Court of Florida, as well as a split among the Supreme Court of Florida’s individual justices.  Due to this division, the road to establishing the standard by which expert testimony is admissible has been as rocky as the Iron Islands’ cliffs or the Wall’s ice shelves.