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Investments in Florida and New York. Opportunities & tax features. AT THE RIGHT TIME. www. 100 SE 2 nd STREET MIAMI, FL 33139 +1(305) 358 4441. Executive Summary. IBC’s 25 years’ real estate experience Continuing growth in Florida Florida Real Estate trend

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investments in florida and new york opportunities tax features

Investments in Florida and New York. Opportunities & tax features.



100 SE 2nd STREET

MIAMI, FL 33139

+1(305) 358 4441

executive summary
Executive Summary
  • IBC’s 25 years’ real estate experience
  • Continuing growth in Florida
  • Florida Real Estate trend
  • Investment opportunities
  • Case studies: Bank Of America Tower
ibc s 25 years of experience
IBC’s 25 years of experience
  • Established in 1984 in Florida
  • Global investment
    • USA office
    • Russia office
    • Luxembourg office
  • Investment principal
    • Focusing on locating excellent real estate investment opportunities at the right price
continuing growth in florida
Continuing growth in Florida

From 2000 to 2030 +28%

From 2000 to 2030 +81%

Single Home price index

Source: US Bureau of Economic Analysis

investment highlights
Investment highlights
  • Discounted prices after the crisis
  • Currency diversification
  • Low mortgage rates
  • Continuing population growth
  • Tourism:84,000,000 visitors annually
  • Healthy Business Climate: Low regulations, low taxes & “right to work” law (few unions). Very pro-international climate, dynamic economy
  • Agriculture:1st citrus state, 2nd cattle state
  • Banking: 3rd largest US Center
  • Mining: $1.92 Bln/year industrial mineral production, fifth in the USA
  • Trade: 5 deep water ports & 30+ free trade zones
  • High profile and well-educated population; Many Europeans, wealthy economy
case studies bank of america tower
Case studies: Bank of America Tower

Price fluctuations in Florida due to similar economical conditions in the past have caused prudent investors to make substantial profits!

foreign investment in new york city vs florida real estate generally
Foreign Investment in New York City vs. Florida Real Estate (Generally)

Three types of Manhattan Real Estate

  • Single-Family / Residential Town Homes
      • least commonly available in New York City
  • Co-operatives
      • comprise 75-80% of the available units in New York City
  • Condominiums

Two types of Florida Real Estate

  • Single-Family / Residential Town Homes
      • most commonly available in Florida
  • Condominiums / Homeowner’s Associations
  • NOTE: Investors will make an analysis as to the more attractive investment and takes personal preferences and the like into consideration. Put generally, from a cost and tax perspective, investments in Florida going forward are likelier to produce better long-run returns.
what is a co operative co op
What is a Co-operative (Co-op) ?
  • Co-ops are on average the cheapest and most common form of real property available for purchase in New York City. However, there are substantial obstacles for foreign buyers interested in buying Co-ops:
    • Buyer must be approved by Co-op board. Co-ops have almost absolute discretion into who they do or do not allow to purchase in their building. Additionally, Co-op boards do not have to disclose reasons for denial.
      • This could be difficult for foreign buyers as many co-ops require New York employment, prior year U.S. tax returns, and an excellent credit history in the U.S.
    • Extensive regulations which may make Co-op ownership unattractive for owners.
      • E.g. Restrictions on rentals and sub-leases of units, guests, noise, etc.
    • Co-op approval process also limits the pool of possible buyers upon possible sale of unit.
    • Co-op boards usually impose additional “flip taxes” on the resale of the co-op to discourage speculators (and investors who do not plan on living the co-op on a permanent basis).
    • Although the purchase price is usually 10-20% lower than that of condominiums, the monthly maintenance charges are usually higher.
monthly expenses in a co operative
Monthly Expenses in a Co-operative
  • Co-ops are different from other forms of ownership in that the owner does not own an interest in property but rather shares in the co-operative corporation. The shareholder’s ownership interest is determined by the size of the unit.
  • Shareholders (owners) pay a monthly maintenance fee which includes the following:
    • Utilities
    • Building maintenance / Groundskeeping
    • Real Estate taxes
    • Pro-rata share of the corporation’s mortgage indebtedness.
  • Shareholders are able to take deductions on their income taxes for their pro-rata share of the corporation’s mortgage interest expense and real estate taxes.
what is a condominium condo
What is a Condominium (Condo) ?
  • Condos are multiple family buildings where one owns an apartment and a corresponding share of common areas.
    • Unlike co-ops there are minimal restrictions, and generally are welcoming of foreign investors.
  • Condos are managed by a Board of Directors, usually composed of residents of the building.
  • Condos are usually higher priced than Co-ops due to the ease of purchase and sale by investor-owners.
monthly expenses in a condominium
Monthly Expenses in a Condominium
  • Condo owners also pay a maintenance fee which covers expenses related to the upkeep of the common areas.
  • Condo owners are usually responsible for the following property expenses in addition to the monthly maintenance fee:
    • Mortgage expenses on the unit.
    • Real Estate property taxes.
    • Utilities (usually electricity).
cost of ownership of nyc real estate
Cost of Ownership of NYC Real Estate
  • Most common charges:
    • Mortgage Payment (if applicable)
    • Monthly Maintenance Fees
    • Annual New York City Real Estate Property Taxes.
  • Property Taxes in New York City
    • Four tier class system based on classification/use of property.
    • Tax rates range from 10 – 17% based on a percentage of market value depending on class.
property tax rates in new york city 2009 2010
Property Tax Rates in New York City 2009- 2010
  • Class 1 :
  • Most single family residences, Condos of three stories or less, vacant land zoned for residential use.
  • Class 2:
  • all other primarily residential properties not included in Class 1, including Co-ops.
  • Class 3:
  • Real Estate of utility corporations and special franchise properties, excluding land and certain buildings.
  • Class 4:
  • All commercial real estate. Hotels, stores, warehouses, and any vacant land not classified as Class 1.
listing of available new york city property tax exemptions
Listing of Available New York City Property Tax Exemptions
  • STAR –New York State School Tax Relief Program (Basic & Enhanced)
  • Senior Citizen Homeowners’ Exemption (SCHE)
  • Disabled Homeowners’ Exemption (DHE)
  • Veteran’s Exemption
  • Military Request for Relief
  • Cooperative and Condominium Tax Abatement
  • Clergy Exemption
  • Note: for most of these exemptions to apply the owner must use the property as its primary residence and not as an investment property.
cost of ownership of florida real estate
Cost of Ownership of Florida Real Estate
  • Most common charges:
    • Mortgage Payment (if applicable)
    • Monthly Maintenance Fees (if owning a condominium)
    • Annual County Real Estate Property Taxes.
  • Property Taxes in Florida
    • Based on a “millage rate” calculation based on the “assessed value” which adjusts yearly subject to any applicable assessment limitations and/or exemptions.
    • “Millage rates” vary depending on the county.
      • Selected rates (2009)
        • Miami-Dade County : 14.276 mills
        • Broward County : 13.902 mills
        • Palm Beach County: 15.037 mills
        • Collier County (Naples): 9.5642mills
        • Hillsborough (Tampa): 14.573 mills
property tax rates in florida 2009 2010
Property Tax Rates in Florida 2009-2010

Formula for Determining Florida Property Tax

  • Just Value (market value) – Assessment Limitations (e.g. Save Our Homes) = “Assessed Value”

Assessed Value – Applicable Exemptions (e.g. Homestead) = “Taxable Value”

Taxable Value X Millage Rate = Total Tax Liability

  • Example: Assume Homestead A has a market value of $400,000, an accumulated $100,000 in Save Our Homes protections, a Homestead Exemption of $50,000, and the millage is 5 mills:
  • $400,000 – $100,000 = $300,000
  • $300,000 – $50,000 = $250,000
  • $250,000 X .005 = $1,250 (Total Property Taxes)

NOTE: Some local Florida cities or villages may have additional property taxes that are beyond the scope of this presentation.

listing of available florida property tax exemptions
Listing of Available Florida Property Tax Exemptions
  • Homestead Exemption Up to $50,000
  • $500 Widow's and Widower's Exemption
  • $500 Disability Exemption
  • $5,000 Disability Exemption for Ex-Service Member
  • $500 Exemption for Blind Persons
  • Service Connected Total and Permanent Disability Exemption
  • Exemption for Totally and Permanently Disabled Persons
  • Additional Homestead Exemption for Persons 65 and Older
  • Homestead Property Tax Discount for Veterans Age 65 and Older with a Combat Related Disability
  • Homestead Tax Deferral
  • Installment Payment of Property Taxes
  • Personal Property
  • Note: for most of these exemptions to apply the owner must use the property as its primary residence and not as an investment property.
tax consequences on sale of united states real property
Tax Consequences on Sale of United States Real Property
  • The United States has two levels of taxation, one at the federal level and one at the State and local level.
  • Local real property taxes (as outlined in the earlier slides) are paid at the state and local level.
  • However, there are federal tax consequences for owners of real property located in the United States upon ultimate sale or disposition.
  • The federal tax consequences also depend on the immigration / residency status of the owner. There are a different set of tax rules and rates that are available to the owner depending on whether he/she is considered a resident of the United States for tax purposes.
  • Finally, tax rates also depend upon the form of ownership, and therefore, it is advantageous for the foreign purchaser of U.S. real estate to engage in tax planning in order to minimize the non-resident’s U.S. tax burden and reporting exposure.
united states taxation of foreign investment in united states real estate
United States Taxation of Foreign Investment in United States Real Estate

Taxation as a non-resident alien is based on three distinct concepts:  

1. The nature and source of the taxpayers' income  

2. The taxpayers' activities in the United States

3. The relationship between its income and its U.S. activities, i.e. whether its income is "effectively connected" with a U.S. trade or business.

In broad outline, foreign persons are taxed at

  • 1) flat rate of 30% percent on the gross amount of their U.S. source passive investment (rental) income, known as "fixed or determinable" income and
  • 2) at full graduated rates as those levied on U.S. residents on net business profits known as "income effectively connected with the conduct of trade or business in the United States." detailed examination of these issues is beyond the scope of this presentation but the following chart should give a useful explanation:
Tax Treatment of Gains and Losses of Foreign Taxpayers on Disposition of U.S. Real Property Interests (“USRPI”)
  • Gains and losses of a USRPI are treated as “effectively connected” with a U.S. trade or business.
  • Under I.R.C. § 897 these gains or losses are taxed at regular U.S. rates as if the taxpayer were a U.S. resident.
  • USRPI also includes interests in any U.S. corporation that qualifies as a U.S. Real Property Holding Corporation (USRPHC) at any time during the previous five years while owned by a foreign person. See I.R.C. § 897(c).
  • USRPHC is defined by the degree of concentration of the entity’s holding of U.S. real property. See I.R.C. § 897(c)(2).
    • More than 50% of the fair market value of its combined holdings of real property worldwide and assets used in the conduct of a trade or business.
  • Note:A Foreign corporation, even if loaded with U.S. real property (and hence a USRPHC) is NOT a USRPI.
    • Sales of the foreign corporation’s stock are not subject to U.S. tax.
    • Regardless, the foreign corporation will eventually be taxed upon the actual disposition of the property.
    • Therefore use of a foreign corporation to hold U.S. real estate offers a deferral of U.S. taxation on the appreciation of the property. (i.e. one can transfer the shares tax free indefinitely– but will be taxed under I.R.C. §897(d) upon final sale of the property .)
Other Taxation Issues of Interest to Non Resident Aliens and Corporations holding U.S. Real Property FIRPTA - Withholding Regime
  • The disposition of a U.S. real property interest by a foreign person (the transferor or seller) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding.
  • Persons purchasing U.S. real property interests (transferee or buyer) from foreign persons, certain buyer’s agents, and settlement officers are required to withhold ten percent (10%) of the amount realized (gross amount).
firpta exceptions to the withholding requirement
FIRPTA – Exceptions to the Withholding Requirement
  • Withholding can be avoided if the Buyer receives from the Seller an affidavit that the transferor is not a foreign person, or if a U.S. corporation, is not U.S. Real Property Holding Corporation (USRPHC).
  • No withholding if shares of the U.S. corporation are traded on an established securities market.
  • If the transaction meets any of the special rules in I.R.C. section 1445(e) on distribution of U.S. real property by U.S. corporations, partnerships or trusts.
availability of tax planning services for foreign investors in u s real estate
Availability of Tax Planning Services for Foreign Investors in U.S. Real Estate

As one can see, the purchase of U.S. real property by a foreign investor is a complicated process. Not only does the investor have to consider the location of the investment, but also in what manner to own the investment. Should it be an as individual ? A corporation ? A partnership ? A trust ? A combination of one or more of these forms? The differences in tax burden between the various forms can be staggering.

This is a complicated undertaking. The form in which an investor holds an investment, if not properly counseled, can entail a variety of tax reporting and tax payment consequences which the foreign investor may not have anticipated.

Therefore, it is imperative that the foreign investor consult with qualified U.S. tax and legal advisors to best tailor an individualized solution to their U.S. investment needs that takes into account all the investor’s business and personal needs both from the U.S. and home country perspective.


Miami Tower,100 S.E. 2nd Street, Suit 2222

Miami, FL, 33131 – USA

Tel: +1 (305) 358-4441

Fax: + 1 (305) 358-1144

Email: [email protected]

Antenna in Russia

Lyteiny pr. 60

St. Petersburg -191125, Russia

Tel: +7 (905) 215-3447

[email protected]

Antenna in Europe

2-8 Ave. Charles de Gaulle

Luxemburg, L-1653

Tel: +352 27-0012

Fax: +352 27-0012-205

[email protected]