With foreign buyers again flocking to buy United States real estate, it is important as a Buyer Realtor to remember to advise them of their obligations and liabilities when they sell it.  FIRPTA (Foreign Investment in Real Property Tax Act) has been around for decades, yet many Realtors forget to tell their foreign buyers of the implications of FIRPTA when the foreigner is looking to buy, thereby possibly short changing their client on options and surprising them with expenses when they sell.

Some Basics:

There is no tax when the property is purchased - it is when it is sold.

A corporation owned by a foreign national is generally subject to FIRPTA.

If a married couple owns the house and one spouse is foreign, then the foreign spouses' one-half interest is subject to FIRPTA.

If a married couple owns the house and one spouse is foreign but is deceased, the deceased interest is still counted as being foreign owned.

The way FIRPTA works, at the sale the closing agent or the new Buyer must withhold and submit to the IRS 10% of the sale price.  Note, that is 10% of the contract sale price, not the net to seller!  The Seller then needs to file a tax return and either pay the additional tax (if more would be due) or seek the refund.

Short Sale transactions are NOT exempt and require the tax be paid.

There Are Some Areas of Relief:

You can apply for an Exemption Certificate from the IRS, which as of now takes about a month to obtain.  If you have no one familiar on how to do it, our firm can do it for you. The Exemption Certificate sets forth the financial aspects of the prior purchase and the present sale of the property and shows that no profit is being made, and thus the IRS will issue a certificate to that effect, exempting the closing agent/buyer from having to withhold the 10% of the sale price.

If the property being sold is residential property and the sale price is under $300,000, and the Buyer will sign an affidavit that the Buyer and family will be the exclusive user of the property for half of EACH of the next two years, then the closing agent can rely on the affidavit and not collect the withholding 10% tax.  A bit weird but many transactions fall into this category.

If a foreign corporation that has elected to be treated as a domestic corporation and furnishes the buyer with a Non-Foreign Person Certification (Entity Transferor), then no withholding will be required.

See my previous articles on FIRPTA here on ActiveRain at FIRPTA and SHORT SALES - DANGEROUS LIABILITY TO BUYER AND CLOSING AGENT and at SHORT SALE AND FIRPTA TAX WITHHOLDING - IRS ISSUES PRIVATE GUIDANCE.  The IRS law on FIRPTA can be found at Foreign Investment in Real Property Tax Act of 1980.

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© 2013 Richard P Zaretsky, Esq.

Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660  [email protected] - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  [email protected]  New Website www.Florida-Counsel.com. 

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