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Inheritance tax is a crucial topic for foreigners who want to invest in 
real estate in Florida . This is because many are unaware that the rate of this tax for foreigners is approximately 40% of the value of the property, which can represent a significant burden for heirs if some simple tax planning measures are not adopted.

inheritance tax

That’s why it’s essential to have guidance from experienced Florida real estate professionals!

Fortunately, there are simple and effective strategies that can minimize the impact of this tax or even eliminate its incidence entirely. To do this, it is necessary to purchase the property through a small corporate structure.

In this article, we explain the main corporate formats available in the state of Florida, such as LLC and Corp, in addition to clarifying the concept of “offshore” and presenting the most recommended structures to protect foreign investors from the impact of inheritance tax with regard to real estate. .

We emphasize the importance of consulting specialized lawyers and accountants to define the strategy that best suits your profile. AMG International Realty is available to help, connecting you with renowned partner offices in Florida to offer all the support you need in planning and executing your real estate investment.

How inheritance tax is calculated: Practical example!

Florida stands out as one of the American states with one of the highest inheritance taxes, known as the “causa mortis” transfer tax.

This tax is levied on the transfer of assets to heirs in the event of the owner’s death, representing a significant burden, especially for foreigners. For non-resident investors, the rate can reach around 40% on the value of the property that exceeds US$60,000.

Below, we present a practical example of calculating the tax for a property with a market value of US$600,000.

  • Property Value: US$ 600 thousand
  • Tax Exemption: US$ 60 thousand
  • Inheritance tax basis: US$540,000 (US$600,000 – US$60,000)
  • 40% Tax: US$ 216 thousand (40% X US$ 540 thousand)

In the example above, the heirs would have to pay $216,000 in inheritance tax on an estate valued at $600,000. This substantial amount could put a significant dent in the family’s wealth.

To avoid this impact, it is recommended that the purchase of real estate in Florida be carried out through a company (legal entity), such as a corporate structure created specifically for this purpose. The logic behind this strategy is simple: companies do not “die”. Therefore, inheritance tax in Florida would not be applied, since, in the event of the owner’s death, the company’s shares can be transferred directly to the heirs.

Among the most widely used corporate formats in Florida for the acquisition of real estate, the LLC (Limited Liability Company) stands out. In the next topic, we will explain how this structure works and why it is widely chosen.

What are the most commonly used business formats for purchasing property in Florida?

Two of the most commonly used corporate formats for investing in real estate in Florida are the LLC (Limited Liability Company) and the Corp (Corporation).

Each of these models has advantages and disadvantages, varying in aspects such as ease of administration, accounting bureaucracy, asset protection and tax benefits. The choice between them should consider the specific needs of the investor and the objective of the investment, since both offer distinct and strategic solutions for different situations.

Below we explain a little about each of these corporate formats:

LLC (Limited Liability Company)

This model is widely chosen for its administrative simplicity and tax efficiency. The LLC is considered a “transparent entity” for tax purposes in the United States, which means that the company’s profits and expenses are reported directly by the partners on their income tax returns, avoiding double taxation. In addition, it offers limited liability protection , separating the partners’ personal assets from the company’s assets, which is a significant advantage for asset protection.

  • NOTE: Contrary to what many investors think, the LLC is not the most recommended model to protect yourself from the applicability of inheritance tax in Florida. Many investors choose this format, not necessarily to avoid inheritance tax, but to minimize the tax impact in other situations (IR deductions and the so-called FIRPTA ), in addition to other tax advantages, such as ease in deducting expenses.

Corp (Corporation)

The Corp is more formal and hierarchical, requiring shareholders and directors, as well as annual meetings and reports. It is more suitable for investors seeking to protect their assets against inheritance tax or who plan to raise investments, as it allows the issuance of shares and can eventually be listed on stock exchanges. However, it has the disadvantage of double taxation: profits are taxed at the company level, and dividends at the shareholder level.

  • NOTE: While the Corp model is widely recommended for real estate investments in Florida, it alone does not provide complete protection from estate taxes. For more effective protection, many tax and corporate attorneys in Florida suggest creating a corporate structure that combines a Corp with an Offshore Company. We detail this strategy in the next section.

What is the correct corporate structure? Understand the role of Offshore

Offshore is a type of company that, as the name suggests, is “off the coast” (off = outside, shore = coast). In other words, it is a company registered outside the United States, or more precisely, outside American jurisdiction. In the article Offshore: what it is and how it works , I explain in more detail how these companies work and their applications.

The key point is that an offshore company can play a strategic role by integrating a corporate structure with companies registered in Florida. This combination makes the company responsible for investing in the property even more protected against inheritance tax. This is because, by owning a US company, the offshore company offers an additional layer of protection, since foreign companies are not subject to US tax jurisdiction in cases of inheritance.

It is worth highlighting, however, that there is no single “recipe” that works for all investors. It is important to study each case with tax and legal professionals.

Creating a corporate structure that combines an offshore company with a Corp in the United States is an example of a widely used strategy to avoid the application of inheritance tax in Florida.

In this model, the offshore company, incorporated outside of US jurisdiction, owns the US Corp, which in turn owns the property. In the event of the death of the owner of the offshore company, inheritance tax in the US does not apply, since companies are not subject to this type of taxation and the offshore company is considered outside of US jurisdiction.

Setting up an offshore company is a completely legal and widely accepted practice, as long as its existence is duly declared to the competent tax authorities.

Is it easy to set up a corporate structure to invest in Florida?

What has been presented above may seem extremely complex, involving bureaucratic and expensive processes, requiring entire teams of lawyers and accountants. However, in practice, it is all very simple and common in Florida. Opening a company in the state of Florida, whether an LLC, a Corp or even an Offshore, is an uncomplicated, accessible and common process. There are several offices specialized in this type of planning precisely to meet the great demand of foreigners who acquire properties in Florida.

Setting up this type of structure is quick and inexpensive. In most cases, companies can be opened in just a few days – usually 2 to 3 – and without the need for the partner to be physically present in the United States.

Is legal and accounting advice very expensive?

The fees for these consultancies are not high. At AMG International Realty we work with partner lawyers and accountants who we always recommend to all our clients.

THIS ARTICLE PROVIDES GENERAL INFORMATION FOR INFORMATIONAL PURPOSES. NUMEROUS FACTORS MAY CHANGE THE INTERPRETATIONS PRESENTED HEREIN. PLEASE DO NOT CONSIDER THE INFORMATION CONTAINED HERE AS LEGAL OR TAX ADVICE. WE ALWAYS RECOMMEND SEEKING ADVICE FROM PROFESSIONALS SPECIALIZED IN THE TAX AND LEGAL AREAS. CAP INTERNATIONAL WORKS IN PARTNERSHIP WITH LAWYERS AND ACCOUNTANTS SHOULD YOU NEED RECOMMENDATIONS.

Want to learn more about Florida inheritance tax?

AMG International Realty is a global real estate agency specializing in Florida. If you would like to learn more about the process of buying a property in Orlando or Miami, contact me now and chat with me on WhatsApp: + 1 305 761 2655 (Heloisa Arazi).