FIRPTA
17-10671_CORP_CAMPAIGN_FIRPTA_BannerGraphic.png

What position do you play on the FIRPTA team?
Everyone involved in the buying and selling of foreign-owned real estate in the United States has a role to play in ensuring a smooth transaction. 

What makes this transaction unique?
The Foreign Investment in Real Property Tax Act (FIRPTA) regulation requires the Buyer of U.S. real estate interests owned by a foreign Seller to withhold 10-15 percent of the amount realized from the sale, unless certain exemptions are met.

The withholding takes place at the closing, and the Escrow Officer or Settlement Agent remits the funds to the Internal Revenue Service (IRS). The Seller’s Real Estate Agent also has a critical role to play – encouraging the Seller to address these issues immediately at listing to ensure there are no surprises or hold-ups at the closing table. 
 

 


FirptaFormHeading.png

Captcha: 
 

NAT_Website_Buttons_1.jpg

1. What is FIRPTA?
 
FIRPTA legislation was enacted in 1980 as a result of concern that foreign investors were purchasing U.S. real estate and then selling it at a profit without paying any tax to the United States. To solve the problem, FIRPTA established a general requirement on the Buyer of U.S. real estate interests owned by a foreign Seller to withhold 10-15 percent of the amount realized from the sale, unless certain exemptions are met. These funds must then be remitted to the IRS at the time of closing.

NAT_Website_Buttons_2.jpg

2. What determines how much
      is to be withheld?

 
Ten percent is withheld in certain transactions (generally when the property will be used by the Buyer as a residence), provided the amount realized from the sale does not exceed $1,000,000. If the amount realized exceeds $1,000,000, then the withholding rate is 15 percent and may be calculated against the entire amount. 

NAT_Website_Buttons_3.jpg

3. Does the Seller actually owe this
      much in taxes
 
Not necessarily. The withholding is a payment towards the tax obligation the foreign person or entity may have. Through the FIRPTA process, the Sellers can apply for a Withholding Certificate that could reduce the withholding – often reducing it to zero. Even if the Sellers are going to owe some taxes, they may be able to deduct closing costs, improvements they made to the property and other deductions when they file the request for the Withholding Certificate with the IRS. This allows foreign Sellers to get a pre-determination either that they owe nothing, so no withholding will take place, or at least get that amount reduced

NAT_Website_Buttons_4.jpg

4. How long does it take to get
      a Withholding Certificate?
 
The process can take at least 90 days. This is why it is important for the Seller to file the request for the Withholding Certificate with the IRS as soon as possible. NOTE: The client must have a Taxpayer Identification Number (TIN) before even applying for the exemption, and that process itself may take some time to complete

NAT_Website_Buttons_5.jpg

5. What if the foreign Seller does nothing prior
      to the closing table?

If the Seller does nothing prior to the closing, the Escrow Agent or Settlement Agent will withhold the appropriate percentage of the sale proceeds at closing and remit to the IRS

NAT_Website_Buttons_6.jpg

6. How can foreign Sellers get their money back
      if nothing is owed?

 
The foreign Seller can file a tax return at a later date to recoup some of that withholding

NAT_Website_Buttons_7.jpg

7. How can a Real Estate Agent determine if the             Seller is a non-U.S. citizen?
 
A Real Estate Agent can simply ask the client if they are a foreign Seller. Or the Agent can ask if the Seller has a Social Security number and if not, that would indicate they are a foreign Seller.

NAT_Website_Buttons_8.jpg

8. What can a Real Estate Agent do to assist his             foreign Seller in the FIRPTA process?
 
The only thing a Real Estate Agent can do is to encourage the Seller to begin the process immediately. A Real Estate Agent cannot give legal or tax advice, but they can advise the Seller to speak to an attorney or tax professional to assist in the process

NAT_Website_Buttons_9.jpg

9. How can a tax professional help?
 
A knowledgeable tax professional can help the foreign Seller get the most beneficial tax treatment for his or her individual situation. In addition, the tax professional can guide the Seller in filing an early application for the refund of excess withholding. This is particularly important as the IRS has reported that refunds file after withholding may take from six to 12 months

NAT_Website_Buttons_10.jpg
 

10. How can North American Title assist
         in the process?

 
Real Estate Agents and foreign Sellers should always make sure the transaction is being handled by a Settlement Agent, such as North American Title, that is knowledgeable about the FIRPTA requirements, as there are civil and criminal penalties associated with noncompliance

NAT_Website_Buttons_11.jpg
 

11. Who is liable if the tax is not withheld and                   remitted to the IRS?
 
Nearly everyone in the transaction can be liable in some way. The IRS considers the Buyer as a “withholding agent” and if the Buyer fails to withhold, the Buyer may be held liable for the tax.
According to the National Association of REALTORS®, If the Seller provides the Buyer with a certificate attesting he or she is not a foreign person, and is therefore exempt from withholding, and the Real Estate Agent for either the Seller or the Buyer has knowledge that the certificate is false, the Agent must notify the Buyer of this fact. Failure to do so could mean that the Agent is liable for the tax that should have been withheld.

And finally the Escrow Officer or Settlement Agent is responsible for remitting the withheld funds to the IRS and could be held liable if those funds are not properly remitted and in the correct amount. For more in-depth information about the IRS regulations, visit www.irs.gov.
 
For more information about how North American Title can assist you with your FIRPTA transactions, please contact your local sales representative, or click here to find an office near you.
 
DISCLAIMER: This Q&A is provided solely for informational and educational purposes and does not purport to offer tax advice or legal advice of any kind. Questions concerning the applicability of the provisions of any state or federal tax legislation or law should be directed to a licensed and qualified tax professional.
  • /getattachment/00000000-0000-0000-0000-000000000000/NAT-Suite.aspx
  • /getattachment/00000000-0000-0000-0000-000000000000/NAT-Track.aspx
  • /getattachment/00000000-0000-0000-0000-000000000000/Find-An-Office.aspx
  • /getattachment/00000000-0000-0000-0000-000000000000/NAT-TV.aspx