Florida cash buyers exploiting tax-dodge loophole in Real Esate
An investigative report in The Miami Herald newspaper this week has reported that Florida, which currently accounts for a third of all the “foreign-backed property transactions” in the USA and is the country’s “number one state for international residential real estate sales,” is losing out on large of amounts of property tax revenues as deals increasingly go through in cash and the buyers concerned register themselves offshore.
“Investors in the Florida housing market have found a way to avoid paying everything from state title transfer fees to federal capital gains taxes,” says the newspaper. “How? By going off-shore, to places like the Caribbean island of Nevis.”
76% of Florida’s overseas property buyers currently pay in cash and, says The Miami Herald, “a loophole is leaving the tax man’s pockets empty when investors set up a shell company in an off-shore tax haven to buy that Florida condo.”
Local agent R.M. Woodnutt, based in Gibraltar Fla, says tax avoidance is definitely the name of the game in Florida right now. “If you transfer the stock in the offshore company and do not actually sell the company or the real estate property outright, then you certainly avoid paying any taxes on the transaction,” he says. “That is the beauty of all this.”
Buyers can quickly and easily set up offshore companies using online sites like www.OffshoreFormations247.com which specialise in setting up shell companies. The site is based in Nevis, which “a lot of people like because it’s quick and easy,” report The Miami Herald, There is only a “three-to-five day turnaround to get a company back. For an LLC it costs $1,295 … a corporation is only $1,695. The only thing you need is name of the company, who the director will be, and where to send it.”
The offshore company then buys the property in Florida and when it decides to sell the property at a later date, the Bearer Certificates of company ownership are transferred to the new owners. “There is no record in Florida of a sell-buy transaction, so no transfer fees or capital gains taxes are ever paid,’ says the paper.
Rosa Schecter, an international property lawyer based in Coral Gables, told OPP that the short cut is attractive because it helps to avoid “a lot of red tape,” a slow state bureaucracy and thousand of dollars in taxes and fees.
“There are different kinds of taxes,” she says. “There are transfer taxes that are associated with every real estate transaction in Florida that you have to pay on a deed; there also are intangible taxes that are due on promissory notes, and documentary stamp taxes. If a property is sold and there is gain on it, obviously there is tax to be paid on that gain.”
Such taxes and fees are never recorded because, as far as Florida is concerned, Schecter also points out, because the property never changed hands – the deed is still recorded in the offshore company’s name. What did change hands was the stock in the offshore company, a transaction that does not need not be disclosed.
Most overseas buyers do not qualify for an exemption from capital gains taxes, since the properties are not usually their primary residence. Forming an offshore company to purchase a house in Florida hides any record of the property changing hands, thus no capital gains are recorded on the tax rolls.
