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Steps foreign investors must take when purchasing real estate

 In a prior post, we noted how foreign real estate investment was likely to increase in 2016 because market for commercial properties was such that opportunities would be difficult to pass up. This, combined with Congress relaxing tax requirements for foreign investors would likely spur additional interest in markets where redevelopment projects are poised to generate a new round of wealth.

With these new opportunities, investors must still understand the proper steps to properly secure real estate in California, whether it is a new shopping center, a hotel or an office building. While this post does not constitute legal advice, it will set forth a few of the basic steps in acquiring commercial real estate. 

Form an LLC – A limited liability company (LLC), is a separate company that will buy and sell real estate on behalf of the investor. This company can also serves as a shield to protect the investor from legal liability.

Obtain an EIN for the LLC – The LLC must also have an employer identification number, which will serve as the LLC’s tax id number, so the company may be identified for tax purposes.

Determine how rental income will be classified – Foreign investors must make a determination as to whether income from commercial properties will be “effectively connected” or “not effectively connected” to a U.S. trade of business. The determination will affect which tax form will be needed to properly classify the income, and possibly which tax rate the income will be taxed at.

Ariel Bedell is an experienced attorney at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at 760-814-9649.