If you are from a foreign country and you have made an investment in California real estate, this article may help you. With foreign buyers and sellers making up a quarter of the people active in the real estate market in California in the spring quarter of 2013, LSL CPAs know the importance of reliable international tax services to protect such investments. If you have recently bought or sold real estate in California and you are from another country, LSL CPAs can help you.
The international tax accountants at LSL CPAs have the experience needed to avoid tax problems for foreign real estate investors. Our focus is on prevention as opposed to resolution by avoiding international tax compliance problems before they arise. Through effective international tax planning, the international tax team at LSL CPAs assists foreign investors by ensuring that both IRS and California state tax and disclosure requirements are covered.
In a recent survey of real estate agents released by the California Association of Realtors (CAR), China, India and Mexico were listed as the top countries of origin. About six percent of the foreign investors came from China with India and Mexico each comprising three percent of the total. Nearly two-thirds of agents said their foreign clients planned to keep purchased properties for more than a year. For such foreign investors, a sound tax strategy is not a choice, but a real necessity. LSL CPAs can make sure your U.S. investment does not become a liability because of a failure to file the proper IRS forms or pay the required taxes.
Although three out of four of the foreign buyers planned to keep their real estate acquisitions for less than six years, any multi-year investment requires preemptive tax planning. The majority of the real estate agents claimed to have worked with foreign investors over the last 12 months. Most of the investors were deemed “the small mom-and-pop type,” according to the association. Forty-six percent owned two to five properties, with 15 percent holding just one property and another 14 percent owning six to 10 properties.
First-time foreign investors with small to mid-sized investments tend to get in the most trouble with the IRS. The problem is that they work with investment advisors who lack international tax consulting experience. By failing to file the proper forms and disclose their participation in such investments, such investors open themselves up to the potential for unnecessary IRS audits and penalties.
Revealing a flood of foreign capital into California, two-thirds of the foreign real estate investors paid in cash. Paying in cash does not mean that IRS tax questions can be ignored. The belief that paying in cash exempts you from tax difficulties and challenges is a mistake often made by foreign investors. In reality, paying in cash can raise a red flag and catch the attention of tax authorities.
The investor’s top reason for buying or selling real estate was “profit potential,” named by about one in three agents. That was followed by “good price,” given by one in four respondents. What LSL CPAs wants foreign investors to know is that their “profit potential” and their “good price” can become liabilities if they fail to consider the IRS tax ramifications of their investments.
This content contains accurate information. It is inherently limited, however, on account of the length of the article and the complexity of the foreign disclosure issues being discussed. It is important to note that this article presents only a partial view of the subject matter.
To learn more about how these issues might apply to your particular investment or tax situation, please call LSL CPAs international tax accountant Yana Weaver at 714.569.1000.
