When a foreigner dies owning real estate in Florida, that person’s property must go through a Florida ancillary probate administration process. This process is similar to formal administration; however, one of the key differences is that the decedent’s estate first goes through probate in the jurisdiction where he or she lived. Then, the decedent’s estate is probated through ancillary administration in the State of Florida.
Once the ancillary probate proceedings begin, the court appoints a personal representative, who may or may not be the individual who is the personal representative in the jurisdiction where the decedent lived.
When it comes to the Florida ancillary administration process, taxation may be an important issue, as there are two – sometimes more – probate proceedings happening simultaneously, in different jurisdictions. It is important to work with an experienced Florida probate attorney who is specialized in Florida ancillary administration to ensure that the personal representative addresses the decedent’s estate tax issues properly.
When a Foreigner Dies Owning Real Estate in Florida – Potential Complications
Many complications may arise when a foreigner dies owning real estate in Florida. Some of the most common are:
- Double taxation
In the United States, only relatively wealthy individuals are subject to estate taxes. In other countries, however, the situation varies. When a foreigner dies owning real estate in Florida, it is possible for both the United States and the decedent’s home country to impose taxes on the subject property. When this happens, however, normally a bilateral tax treaty will prevent double taxation as long as it is properly applied.
- Conflicting laws
Although a foreign country has no way to enforce any disposition of the status of real estate located in the State of Florida, it could take an award issued by a Florida court into account when determining the disposition of a deceased individual’s real property located outside of the United States.
The Foreign Investment in Real Property Tax Act
The Foreign Investment in Real Property Tax Act (FIRPTA) allows the United States to tax non-US citizens on dispositions of real property interests within the country. The IRS defines a disposition as a sale, exchange, transfer, gift, liquidation, or redemption.
FIRPTA applies when a real estate buyer purchases real estate from a foreigner. In this type of transaction, the law requires the buyer to withhold 15% of the purchase price. This amount will be due to the IRS within 20 days after the sale is completed.
However, under FIRPTA, withholding of funds is not required if the buyer signs an affidavit, either before or during closing, stating their intention to use the subject property as their home for at least 50% of the time they will occupy the property, for each of the first two years after the purchase is completed. However, for this exemption to apply, the price the property sells for cannot be higher than $300,000.
Another exemption is through a FIRPTA withholding certificate, which applies when the price a property sells for is 15% higher than the tax that will be owed. If the certificated is approved, the withholding amount is reduced based on the gain of the sale of the property instead of the selling price. However, you cannot apply for this certificate before closing. In addition, both the buyer and the seller must have a US tax ID – or at least have applied for it – to qualify.