Don’t forget about FIRPTA when Home Buying

What is FIRPTA?

F.I.R.P.T.A. is an acronym for Foreign Investment Real Property Tax Act. It was established in 1980 for the purpose of withholding the estimated amount of taxes which may be due on the profit of the disposition of a U.S. Real Property Interest from foreign persons. 10% of the gain on the sale is withheld as anticipated tax due on the sale of U.S. real property interest.

Who is responsible for FIRPTA?

Even though FIRPTA sounds like a foreign name that most home buyers are not familiar with, the home buyer could be held financially liable if the FIRPTA tax is not collected. When a foreign seller (not a U.S. Citizen or U.S. resident alien) sells a property, they are subject to paying income tax. In order for foreign sellers not to evade this tax responsibility, the burden of payment liability has been shifted to the buyer.

How to know you are buying from a Foreign Seller

In order to really know, you have to investigate.

Sellers are required to notify the buyer, per the contract: There is specific language in the real estate purchase contract: “Seller shall inform Buyer in writing if seller is a “foreign person” as defined by the Foreign Investment in Real Property Act (“FIRPTA”).”

Seller has a foreign address and/or resides outside the U.S.

Listing Agent should know the sellers status as a foreign person.

Title Companies forms require the seller to certify that are not a foreign person at closing.

There is a concentration of 7,000 foreign owners in the Orlando vacation home market, chances are if you are purchasing in that area, you will encounter a foreign seller for FIRTPA evaluation.

Your Orlando Buyer Brokers are skilled in screening transactions involving foreign sellers, so buyers are not unknowingly caught with a problem.

Exemptions to FIRPTA Withholding

Buyers are required to withhold 10% of the purchase price for FIRPTA, unless the one of the following occurs:

Seller provides buyer a certification that they are a Non-Foreign person.

Seller provides a withholding certificate that eliminates or reduces sellers tax liability. If Withholding Certificate has not been processed by the closing date, the buyer will need to withhold the 10% either in escrow or send to IRS.

The purchase price of the property is $300,000 or less and the buyer or buyers family intends to use as their primary residence 50% or more during the first 12 months. Buyers may have to sign an addendum or affidavit confirming their occupancy.

Requirements for FIRTPA Payment

The foreign seller and buyer will need U.S. Federal Tax Identification number.

The foreign seller may have to pay additional money at closing to the buyer if there is insufficient proceeds from the sale of the property.

FIRPTA payment must be made within 20 days of closing to the IRS.

Buyers are required to file IRS forms 8288 and 8288A, and provide the seller with copies.

Normally in real estate closings, the title company will be the agent to arrange payments to IRS on behalf of the buyer.

Buyers Broker of Florida, serving all of Central Florida make it their business to know nuances of home buying. If you think you may want to purchase a home but do not know where to start, contact our office by phone or email for a complimentary consultation. 407-539-1053