Chapter 6: In This Chapter  Laws and Regulations  Four Important Federal Laws  Taxpayer Identification Number  Taxation  Immigration and Visas  Risk Factors and Reduction Page 116

Federal Restrictions and Reporting Requirements  Few federal restrictions on type, location, or value of property  Reporting requirements for: Purchases of agricultural land High-value properties or investment interests  States may impose other restrictions and requirements Page 117

State Regulation  Licensing and regulation  Agency relationships  Environmental issues Coastlines Building requirements Page 118

Municipal and Community Regulation  Zoning  Building permits  Environmental regulations  Covenants, Conditions, and Restrictions (CC&Rs) Page

Four Important Federal Laws  Antitrust  Real Estate Settlement Procedures Act (RESPA)  Fair housing law  Federal law that governs contact CAN-Spam Act Page

Taxpayer Identification Number (TIN)  Necessary to transact real estate business  IRS Form W-7 Page 124

Property Tax  States and municipalities  Based on assessed value Set dollar amount Percentage  Paid in arrears  Paid by lender from escrow if property is mortgaged Page

Transfer Tax  State, municipal, or county  Based on sales price Typically a specified amount per US $100, $500, or $1,000 of purchase price  Buyer, seller, or both may be required to pay Page 125

Federal and State Estate Tax  Tax on bequests received by heirs, including real estate assets  Exemptions less for foreigners  Non-citizen surviving spouses not eligible for marital exemption  Currently top federal rate of 35% on value of estates above US $5 million  Ongoing developments in policy Page 125

Income Taxes Definition of Resident Status for U.S. Tax Purposes U.S. Citizen Taxed on worldwide income; credits are allowed for foreign taxes paid Resident Alien Taxed on worldwide income; credits are allowed for foreign taxes paid Nonresident Alien Taxed only on U.S.-sourced income Note: These definitions are different than the classifications for immigration; tax treaties may override these rules. Page 126

Capital Gains and Withholding Taxes  Nonresident taxes: Capital gains on sale of U.S. real property taxable, regardless of time spent in country 30 percent withholding tax on all U.S. investment- type income, payable within 20 days after transaction Rental income connected to U.S. trade or business taxed as if received by U.S. citizen Page

1031 Tax-Deferred Exchange Four Basic Rules of 1031 Exchanges 1. Property must be held for investment or productive use in trade or business; dealer property does not qualify. 2.Property must be exchanged for like-kind property. 3. Replacement properties must be identified within 45 days after the relinquished property is transferred. 4. The exchange must be completed (replacement property received) by the earlier of 180 days or the tax return due date. Generally, defers capital gains due on U.S. properties Page

Foreign Investment in Real Property Act (FIRPTA)  Buyer of U.S. property from foreign person must withhold 10% of purchase price Remit to IRS within 20 days of transaction  Withholding agent subject to civil and criminal penalties for noncompliance Real estate professionals liable for amount of commission  Exemptions: Personal residence under US $300,000 IRS provides statement that seller is exempt Page

Immigration and Visas Overview  Advise clients to contact U.S. Consulate in home countries  I-94 Form  US-VISIT  Visa Waiver Program Page

Visa Waiver Program Requirements  Authorization to travel through Electronic System for Travel Authorization (ESTA)  Intent to stay 90 days or less  Sufficient funds  Approved air or sea carrier  Machine-readable passport Digital photo Integrated electronic chip Valid at least 6 months past stay Page 131

B-1 and B-2 Visas  B-1 for certain business activities May not receive U.S.-sourced salary Direct management of business not allowed 6-month stay (can be extended)  B-2 for pleasure and tourism May not engage in business activities Page

EB-5 Immigrant Investor  Investment must: Be in a Regional Center Be at least US $1 million Provide goods or services to U.S. markets Create full-time employment for 10 U.S. workers  Investor/visa holder must be involved in management of business Page

Other Visa Categories  L-1 Intracompany Transferee  E-1 Treaty Trader  E-2 Treaty Investor  H-1B Specialty Occupations  O-1 and P-1 Extraordinary  Specially Designated Nationals (SDN) List Page 135

Health and Auto Insurance  Health insurance Privatized (except for seniors) Expensive Short-term policies available  Auto insurance Required in all states Premium depends on location, make and model of car, driver, and intended use Page

Errors and Omissions Insurance  Insures real estate professionals against liability for claims of negligence or mistakes  Protects professionals from bearing the full cost of legal defense  Policies available for firms and individuals Most insured through firms  Does not protect against intentional, fraudulent, or unlawful activity Page 137

Expanding Your Business  Opening a brokerage firm Responsibility for every transaction Responsibility and risks associated with business  Offering property management services Owners expect professional service that meets investment objectives Experience and education required Page

Working with Developers  Some states require registration of development properties  Requirement may apply to properties in-state, out-of-state, and out-of-country marketed in the state  Real estate professional potentially liable for noncompliance  No U.S. trade show sales of development properties Page 138