As foreign buyers make up a quarter of the people buying and selling real estate in California this spring, LSL CPAs offer foreign buyers quality international tax consulting and international tax services. In a recent survey of real estate agents released by the California Association of Realtors (CAR), China, India, and Mexico were listed as foreign real estate investors’ top countries of origin. What is essential to realize is that foreign real estate investment entails tax filing and tax compliance requirements for foreign real estate owners.
The international tax consulting team at LSL CPAs has the experience to avoid tax problems for foreign real estate investors. Our focus is always on prevention instead of resolution by avoiding compliance issues before they become problems. Through effective international tax planning, LSL CPAs help foreign investors protect their California real estate investments by designing a structure that optimizes their worldwide tax burden over the life of the investment.
In the CAR survey, about six percent of real estate investors came from China, with India and Mexico each comprising three percent of the total. Nearly two-thirds of agents said their investor clients planned to keep their properties for over a year, revealing a long-term California real estate investment strategy. Such a long-term California real estate investment strategy by foreign investors means a sound tax strategy is not a choice but a definitive necessity.
Although three out of four buyers planned to keep their real estate acquisitions for less than six years, any multi-year investment by a foreign entity demands preemptive tax planning. The April email survey drew 719 responses from real estate agent members throughout California. Most real estate agents claimed to have worked with foreign real estate 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.
What LSL CPAs know from experience is that such mom-and-pop types of foreign investors are the ones that tend to get in the most trouble with the IRS. The problem is they work with CPAs and investment advisors who lack international tax consulting experience and international tax planning expertise. Time and time again, they do not file the proper forms, they fail to cover the bases, and the result is unnecessary IRS penalties and fines.
Showing 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. If anything, paying in cash results in higher income, hence higher tax and price for tax structuring mistakes.
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. LSL CPAs want foreign investors to know that their “profit potential” and “good price” can become instant liabilities if they fail to consider the IRS tax ramifications of their California real estate investments.
Although this content contains accurate information, it is inherently limited because of the length of the article and the complexity of the real estate investment tax issues at hand. As a result, it presents only a partial view of the subject matter. To learn more about how these issues might apply to your particular California real estate investment from a more three-dimensional perspective, please call LSL CPAs international tax expert Yana Weaver at 714.569.1000.
