Picture this….you have the best new listing! In this market, it will definitely go into multiples. The sellers are foreign and live in Brazil. Logistically that complicates things a little with closing and communication, but you’ve got this! Is there anything else you should plan for?
YES!
FIRPTA – you should plan ahead and communicate with your seller right away.
If your seller is foreign, it is critical to advise your seller that any foreign person selling a U.S. real property interest should address FIRPTA requirements with their tax professional at the start of the selling process to prevent issues or delays at closing.
What is FIRPTA?
The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) When a foreign-owned U.S. real property interest is sold, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that a tax equal to 10 or 15 percent of the “amount realized” by the foreign person upon disposition be remitted to the Internal Revenue Service (IRS), unless one or more exemptions apply to the seller on the transaction.
What is the withholding rate?
• When the property will be used by the buyers as a residence, the withholding rate of 10 percent applies provided the “amount realized” from the sale exceeds $300,000 but does not exceed $1,000,000.
• If the “amount realized” exceeds $1,000,000, the withholding rate is 15 percent.
• When the property will be used by the buyer as a residence, no withholding is required if the “amount realized” from the sale is $300,000 or less.
• When the property is not acquired to be the buyer’s residence, the withholding rate is 15 percent of the “amount realized” from the sale.
How can the real estate professional prevent closing delays?
• Advise foreign persons selling a U.S. real property interest to seek advice from a licensed and qualified tax professional.
• Let the title company know right away so they can prepare documents accordingly on their end.
How can a seller facilitate the process?
• Seek the advice of a licensed and qualified tax professional.
• Be proactive. Determine if there is an exception from withholding. Consider obtaining a withholding certificate from the IRS to determine what the seller actually owes. This could greatly reduce the amount withheld at closing. This process can take up to 90 days or more. Advise the seller to start this process early
Interested in the steps we as the title agency take with FIRPTA?
Please feel free to download the below document:
As always, reach out anytime you have a question regarding this or any other real estate scenarios! We love to help!