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FIRP-DUH! – Selling Real Property for Foreigners

Posted on September 1, 2019 by Randy Gilbert

What is FIRPTA? Say a foreign seller wants to sell their real property; well, everyone is expected to pay their fair shares of taxes, and foreigners are no exception. So the IRS established FIRPTA (Foreign Investment in Real Property Tax Act) generally requiring 15% percent of the amount realized (i.e. of the Gross Sales Price) to be withheld until the IRS figures out the foreigner’s tax liability, if any.

Who does FIRPTA apply to? FIRPTA applies to: Non-U.S. citizens; Foreign corporation, partnership, trusts, or estates; and Resident alien individuals who do not pass either the Green Card Test (lawful permanent US residents whose status is not revoked); or the “Substantial Presence Test” (physically present in the US at least 31 days during the current year, and 183 days during the 3-year period including the current year). See, IRS TOPIC 851. Single-Member LLCs are considered “Disregarded Entities” for tax purposes so if the sole member is a foreigner, then FIRPTA applies as if the foreign sole member was the seller.

Common Exceptions to FIRPTA? (1) Property is $300,000 or less and will be used as buyer’s (or their family member’s) personal residence for at least 50% of the days the property is used during each of the first two 12-month periods following the sale; (2) Seller states in an affidavit under penalty of perjury that seller is not a foreign person, and provides their U.S. taxpayer identification number, usually a social security number; (3) Seller signs a “Declaration and Notice to Complete an Exchange” (1031 Declaration and Notice), completes a simultaneous exchange (i.e. Sells/Buys a non-principal residence the same day) and receives no cash or mortgage boot (e.g. swaps debt to the replacement property or is relieved of the debt on the relinquished property); (4) IRS issues a “Withholding Certificate” after receipt of a completed Form 8288-B which should be applied for in advance to reduce waiting time. A pending application suspends the obligation to pay the withheld amount until the 20^th day following the IRS determination; (5) The transfer is of an interest in a non-publicly traded domestic corporation which provides an affidavit stating that it has not been a “U.S. real property holding corporation” (i.e. a corporation whose U.S. real property interests equals ½ of all its real property interest worldwide plus all other assets during the past 5 years); and (6) The interest transferred are stock traded on an established securities market.

Be Pro-active. Individuals who do not qualify for Social Security Numbers (SSN) may obtain Individual Taxpayer Identification Numbers (ITINs). Sellers of U.S. real property interests will need a Taxpayer Identification Numbers (TIN) when they either request a Withholding Certificate, or to pay any required withholding taxes to the IRS. The IRS takes around 90 days from receipt of applications to respond. Therefore, foreign sellers should file Form 8288-B to obtain a Withholding Certificate from the IRS as soon as they enter the contract in order to reduce the IRS’ holding time of the seller’s proceeds.

How “Buyers” Report. Even though it is the seller’s taxes, the buyer must pay the withheld taxes and mail IRS forms 8288 and 8288-A, and any 8288-B with the IRS by the 20^th day after the transfer.

DISCLAIMER: Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant. The author Randy Gilbert, J.D. is neither an attorney nor an accountant. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ^®

Real Estate’s 2019 Legislative Changes

Posted on August 1, 2019 by Randy Gilbert

Fla. Stat. §604.71 Vegetable Gardens.?When city fined homeowner for vegetable garden, Florida said That’s fertilizer!, essentially voiding local regulation of residential vegetable/herb gardens.

Fla. Stat. §119.071 Shhh!. Exempting public disclosure of current/former government personnel, spouses, and kids’: addresses; phones; birthdays; photographs: employment; and schools.

Fla. Chap. 117 Count on R.O.N. Remote Online Notaries may notarize signers not physically present but who appear by real-time audio/video recordings.

Fla. Stat. §163.3214 What a prune! Prohibiting local government from stopping pruning/removing trees on residences from March 1 – June 1 if certified by arborist as dangerous.

Fla. Stat. §553.79 Closing Permits. Building department may: (1) close 6 year old permits without final inspection if no safety hazard; (2) “not deny issuance of a building permit to, issue a notice of violation to, or fine, penalize, sanction, or assess fees against an arms-length purchaser … solely because a building permit was applied for by a previous owner of the property was not closed;” (3) Still enforce remedies against the prior owner and contractor listed on the permit.

Fla. Stat. §386.202 Vape Hate. With few exceptions, no more vaping in indoor workplaces.

Fla. Stat. §1000.05 No Anti-Semites! . Adds religion to protected class against discrimination by students and employees in Florida’s public K-20 education.

Fla. Stat. §627.7152 Get a J.O.B. not an A.O.B. Assignment of Benefits (AOB) are agreements that transfers insurance claim rights/benefits to a third-party (usually a contractor). An AOB typically gives the third-party authority to file a claim, make repair decisions, and collect insurance payments without the homeowner’s involvement. Insurers will now be allowed to offer insurance policies that restrict or prohibit AOBs to contractors.

DISCLAIMER: Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ^®

Attracting Out-of-State Homebuyers Using S.A.L.T.

Posted on July 1, 2019 by Randy Gilbert

I always heard other states pay more taxes than Floridians, but I had no idea how much?!? State and Local Tax (S.A.L.T.) deductions allow taxpayers of high-tax states to deduct local tax payments (e.g. property, income, and sales taxes) from their income on their federal tax returns. This deduction used to be unlimited. But starting in 2018’s tax year, the new Tax Cuts and Jobs Act, capped SALT deduction at only $10,000. So this is the first year to really “hit home.” The SALT cap really negatively impacted Florida’s luxury housing market sales.

But by the numbers, it still makes sense for out-of-towners to move to Florida. For ultra-wealthy residents in high-tax states, Florida is a tax-haven. Florida, has no state income tax. Conversely, residents of other states are forced to pay personal income tax, as much as: CA (13.3%), NJ (10.75%), NY (8.82%), CT (6.99%), and IL (4.95%); plus NY City charges an additional personal income tax. Effective July 1, 2019, NY also implemented a 1.25%-3.9% “mansion tax” payable by buyers on residential properties of $1M or more; which is in addition to Sellers paying a 0.4%-0.65% state “transfer tax”, plus 1.0%-1.425% NY City transfer tax.

On January 1, 2019, the Federal Estate Tax exemption increased to $11.4M per individual, but some states still assess their own estate and inheritance taxes. These “death taxes” are charged in addition to any federal estate taxes that heirs will owe on assets you leave behind for them. Florida has no estate tax. But in 2019, estate taxes must be paid on assets over: CA ($0), NJ (repealed estate tax in 2018, but still has inheritance tax), NY ($11.4M), CT ($3.6M but in 2020 will go to $11.4M), and IL ($4M).

With all Florida has to offer, its tax savings could warrant buying a Florida luxury home.

DISCLAIMER: Not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney. FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.” ^®

WeedEstate – Real Estate up in Smoke

Posted on June 1, 2019 by Randy Gilbert

Intro. Mom says “Yes,” but Dad said, “No.” That’s what this hot topic is like. Even though Florida legalized medical (not recreational) marijuana use, marijuana businesses precariously operate in violation of Federal laws. As a result, banks and title companies like us which insure real estate transactions have been cautious to get involved.

“Yes” – Florida. Florida’s 2016 constitutional amendment Art X §29 legalized “medical marijuana production, possession and use,” for “Debilitating Medical Conditions,” such as: “cancer, epilepsy, glaucoma, HIV, AIDS, PTSD, ALS, Crohn’s, Parkinson’s, MS, or other debilitating medical conditions of the same kind or class as or comparable to those enumerated….” Notwithstanding, Florida bows to federal law stating, “Nothing in this section … purports to give immunity under federal law.” Art X §29(c)(5).

“No” – Federal. In 2017, U.S. Attorney General Jeff Sessions, gave all U.S. attorneys prosecutorial “discretion” to pursue cannabis crimes. Under Federal law, marijuana is an illicit Schedule 1 narcotic (i.e. same category as heroin, LSD, and ecstasy). There are several federal statutes criminally and civilly penalizing engaging or supporting cannabis manufacture, production or sales including: 18 USC §1956 (money laundering); 21 USC §841(a)(1) & 18 USC §2 (aid or abet others to possess, sell or manufacture cannabis); 18 USC § 1962(d) (conspire to participate in racketeering) and 21 USC § 881(a)(6) (civil asset forfeiture). Under federal forfeiture statutes, “[a]ll right, title, and interest in property … vests in the U.S. upon the commission of the act giving rise to forfeiture….” 21 USC §853(c). This automatic forfeiture, could potentially relate back to not just the first use in the state legal marijuana business, but all the way back to the initial acquisition of property with the intent to use it in a marijuana enterprise, making insuring ownership highly worrisome.

Federal push. Thirty four (34) states have some form of legalization, and 10 of those allow recreational use. A 2018 Farm Bill was even passed allowing hemp farms (>.3% THC). Currently there are many Federal legislative initiatives proposed to legalize cannabis (S.777, S.780, S.420, H.R.1824, H.R.1810) by: De-scheduling cannabis as a controlled substance; Imposing a progressive tax rate from 10-25% over 5 years; Establishing permit requirements; Transferring jurisdiction from the DEA to the ATF (Alcohol Tobacco Firearms); Allowing tax deductions; Defer to state law relating to cannabis; and Removing banking restrictions. Additionally, the US vs. McIntosh 833 F.3d 1163 (9^th Cir. 2016) decision limited federal enforcement of marijuana laws where the conduct was in compliance with state law.

Will Short-Term Rentals be Curbed?

Posted on May 1, 2019 by Randy Gilbert

In 2017, Airbnb sued to stop Miami from banning property owners and investors from renting out their houses as short-term rentals by issuing $20,000+ fines pursuant to Miami’s local ordinance. Advocates for short-term rentals reap rental income rewards; while opponents angst over living next to a revolving door of fly-by-nights, nuisances, and insecurity.

Recently, the appellate court in Miami vs. Airbnb identified Florida Statute §509.032 as prohibiting local governments from enacting new laws (after June 1, 2011) that ban or regulate vacation rentals. The court extrapolated, “A local law, ordinance, or regulation may not prohibit vacation rentals or regulate the duration or frequency of rental of vacation rentals.” §509.032(7)(b). Generally, a “vacation rental” is a condo unit, co-op, house, or dwelling unit rented on a “transient” basis to guests more than 3x in a calendar year for periods less than 1 month, or which is held out to the public as a place regularly rented to guests.

In Florida, vacation rentals play a vital role in tourism, and in-turn, property acquisition of rental homes is also vital to our economy. To address the issue, proposed House Bill 987 and S. B. 824, if one should pass, would retroactively amend short-term rental laws. They both find that public lodging is preempted to the State (not local governments), and residential property owners have constitutionally protected rights to use their property as vacation rentals. The bills generally propose prohibiting local governments from usurping State authority to regulate: occupancy limits; inspections; licensing; duration or frequency of rentals; and would additionally require homeowners obtain vacation rental licenses from Florida’s DBPR in case of complaints. Local governments however would be permitted to regulate advertising platforms on the Scrutinized Companies that Boycott Israel List. Ironically, in January Gov. Ron DeSantis placed Airbnb on Florida’s scrutinized companies list.

RON – Remote Online Notaries-Closings Worldwide?

Posted on April 1, 2019 by Randy Gilbert

Florida proposed two bills, HB-409 and SB-548, to allow Remote Online Notaries (RON) using audio-visual technology over the internet, instead of requiring signers’ physical presence before a notary. 19 states have pending RON bills, 10 have RON laws. This article summarizes proposed changes to Florida’s Notary Chapter 117, if SB-548’s revisions are adopted for 2020.

The RON must be in Florida; signers however, may be anywhere. §§117.01, 117.209. The online notarization’s validity will be determined by Florida law, regardless of the signer’s location. §117.209. The notary block must identify not only the RON’s location, but also whether the signer was physically or virtually present (e.g. “The foregoing instrument was acknowledged before me by means of [ ] physical presence or [ ] online notarization, this _ day of….”) §§117.05, 117.201. The signer must either be: (a) “In the same physical location … and close enough to see, hear, communicate with, and exchange credentials….; or (b) In a different physical location but able to see, hear, and communicate with the person by … audio-video communication technology …. defined as … real-time, two way communication using electronic means by which participants are able to see, hear, and communicate with one another.” §117.201. Furthermore, the RON must confirm the signers’/witness’ identity by: (1) remote presentation of a government issued ID; (2) “credential analysis” (where a 3rd party affirms the government-issued ID’s validity); (3) “identity proofing” (where a 3rd party affirms identity through questions formulated from public or proprietary data sources or via biometric verification); and (4) performed by a Florida Notary under Florida law. §117.265, §117.201. The RON must keep detailed electronic journals and retain the audio-video recording thereof for 10 years. §117.245. Becoming a RON requires an additional notary course. §117.225.

GTO’s – Laundering Real Estate

Posted on March 1, 2019 by Randy Gilbert

The U.S. Treasury commissioned FinCen (Financial Crimes Enforcement Network) under the Bank Secrecy Act to combat: money laundering, tax evasion, drug trafficking, corrupt officials, financial crimes, and terrorist networks. Money laundering is the process of disguising assets with apparently legal sources. Real estate purchased through shell companies with cash are attractive avenues for criminals to launder illegal proceeds while masking identities.

$10K Run. Businesses receiving $10,000.00+ in cash must report using IRS Form 8300.

$300K GTO, Geographic Targeting Orders (GTOs) issue every 180 days and until November 2018 were confidential. Currently, the GTO requires identities of all “Beneficial Owners” (i.e. those who directly or indirectly own 25% or more equity) of a “Legal Entity” (e.g. Corp., LLC, partnership, other business entity, or trust) used to purchase “Residential Real Estate” be reported within thirty (30) days of closing to FinCen if: (1) the amount is $300,000.00 or more; (2) in Dade, Broward, or Palm Beach Counties; (3) without a bank loan or similar external financing; and (4) purchased in part using currency; cashier’s, certified, traveler’s, personal, or business check; money order; funds transfer; or virtual currency. “Residential real estate” seems broadly construed as it likely includes: “A residential structure that contains 1-4 units, including, if used as a residence, an individual condominium unit, cooperative unit, mobile home or trailer; or residential real estate upon which such a structure is constructed or intended to be constructed.” See, 31 CFR §1010.100(LLL). The report must include a copy of a license or passport.

No Attorney-Client Privilege. Information for completing a GTO report cannot be withheld. US v. Leventhal, 961 F.2d 936 (11th Cir. 1992)

Penalties. Penalties range from $500-$100K plus 5 years in jail.

World of OZ – Opportunity Zones

Posted on February 1, 2019 by Randy Gilbert

What is an Opportunity Zone? This is the new real estate rage. To spur investment in places investors might otherwise overlook, a program was designed to provide tax incentives to developers to invest in low-income distressed neighborhoods. In June of 2018, 8,700 communities designated in the U.S., with 30 in Broward, 67 in Miami-Dade, and 427 in all of Florida.

Benefits? Investors or developers may defer and possibly forgo paying capital gains taxes, or taxes resulting from the sale of certain types of assets. The program also encourages new construction, providing the biggest tax break to investors who keep money in these zones for at least 10 years.

Qualifications? The guidelines are written broadly so almost any can qualify, exceptions include: private or commercial golf courses, massage parlors, tanning salons, and gambling facilities to name a few. Multifamily properties, warehouses, and self-storage facilities make the most sense, because the program encourages investors to hold properties for at least 10 years.

How to invest? Investors cannot put money directly into a specific project or business in these zones. Instead, they have to invest in what are called “Qualified Opportunity Funds” that holds at least 90% of its assets in opportunity zone property.

What to invest? To defer a gain, a taxpayer has 180 days from the date of sale or exchange of appreciated property to invest realized gain into a Qualified Opportunity Fund. The taxpayer may invest return of principal as well, but only the investment attributable to the capital gain portion will be eligible for the tax exemption. The program allows for the sale of any appreciated assets, such as stock with a reinvestment of the gain into an Qualified Opportunity Fund. There is no requirement to invest in a like-kind property to defer the gain.

Speed and Efficiency

Posted on December 1, 2018 by Randy Gilbert

Speed and efficiency are two different things. I mean sometimes the fastest way down is to just jump off a cliff, but is that really the best solution? Speed is inconsequential if you are headed in the wrong direction.

“Fintech” is a portmanteau of “financial technology.” The mortgage industry felt the need to speed up the transaction, and then experienced a wave of technological innovation seeking to automate, simplify, and accelerate each step of the mortgage origination process.

In the movie Top Gun, it was “I feel the need, the need for speed.” So with that, lenders then turned to title companies like us as their wingmen, to deliver similar results to close faster. But, in building roads to faster closing, the right balance between convenience, security, and risk are all issues we must consider. While we have been in the forefront of digitizing documents and exchanging with lenders for partial electronic closings, the inability to “record” electronically signed documents in the public records comes as a major road block to a fully automated closing.

Although Florida permits electronic notarization which is fairly useless, it doesn’t authorize remote online notarization (RON) done through a webcam where the person is not physically present or in a different location. Florida should pursue legislation to explicitly recognize remotely notarized documents. The U.S. Treasury recommends states align to further standardize notarization practices, but it would be easier if Congress provided legislation itself.

Additionally, county recording offices typically will not recognize or accept electronic signatures on deeds or mortgages in lieu of a physical “wet” signatures. Florida should implement the necessary technology updates to process and record these digitized documents.

We will continue to prioritize investing in technologies to streamline the complex processes and deliver new found convenience, by reducing paper, time and human error, and allowing customers to close anytime, anywhere, on their terms.

We Took the Title

Posted on November 1, 2018 by Randy Gilbert

Title insurance is a billion dollar industry. On October 11, 2018, our website (FTIC.net) was crowned the BEST Title Insurance Website in the nation according to ALTA – the governing trade association. So how did little ol’ us do it?

First, realize no one knows your industry better than you. Unfortunately this is not something you can completely delegate to a web-designer who is just going to copy someone else’s website and then tattoo your name and logo onto it. It’s like everyone in school cheating off the same paper. Eventually you will all look like clones and the teacher is going to notice. So break the cycle, do your own work, and really make yourself stand out and look awesome with your own individualized tattoo (it’s just a metaphor).

Second, “It’ not me, it’s you!” in this context is a good thing. Shelve your conceit about how wonderful you are for now, and instead really think about your customer. I spent weeks looking at over 1,000 competitor websites and noticed the same braggadocios blah-blah each professing how great they were. Refocus your attention instead on what should be your greatest asset, which is giving phenomenal customer experiences.

Third, good is the enemy of “Great.” It was never our goal to simply be good. What does that even mean? Good enough; which is synonymous with okay or status quo? It wasn’t easy but our website took months: poking cheeky fun at ourselves and our industry; making analogies so lay people could understand title insurance; creating interactive line-by-line explanations of documents typically seen at a closing; navigable buttons for ADA accessibility; and over 80 really engaging, colorful, and playful images embodying inclusiveness, diversity, and family.

So go out there and figure out what you need to do to be recognized as the best in your industry, put those ideas into action, and transition yourself from good to “Great.”