South Florida is prized for its pristine beaches, premium country clubs, and high quality of living. It is no wonder we see many foreign buyers and sellers seeking property in our area. The Foreign Investment in Real Property Tax Act (FIRPTA) is the federal law that oversees tax payments on U.S. real property interests by non-foreign taxpayers. FIRPTA rules are complicated, and the penalties for violating them can be severe, so it is no surprise that the rule’s requirements and exceptions are often misunderstood. Here are a few key takeaways:
- FIRPTA IS NOT A TAX. IT IS MERELY A WITHHOLDING: Under FIRPTA, buyers must withhold 10-15% of the purchase price when acquiring U.S. real property from a foreign seller, who must apply for a U.S. Tax ID number and ultimately file a return on the gain or loss for the sale, just like any other taxpayer. The withheld amount is credited toward the seller’s potential tax obligations when they file a U.S. tax return at the end of the tax year. This withholding acts as a deposit against the seller’s capital gains tax and must be remitted to the IRS within 20 days of closing.
- FIRPTA WITHHOLDING IS THE BUYER’S RESPONSIBILITY: Since the property being sold is often the one single asset of a foreign seller, with no other connection to the U.S., IRS guidelines require the buyer to ascertain the seller’s status and ensure the submission of the withholding. If a buyer fails to do this, they may be held personally liable for the seller’s tax obligations, along with interest and penalties.
- FIRPTA WITHHOLDING APPLIES EVEN IF THE SALE IS A LOSS: Even if the sale results in net proceeds that are less than the purchase price, withholding must still be collected, which may result in the seller having to come to the table with cash.
At Gefen Law, we help foreigners comply with federal FIRPTA requirements by working with qualified tax preparers and CPAs who are adept at the FIRPTA laws, to avoid delays in closing and prevent IRS penalties for late or incomplete filings.
Having a real estate lawyer by your side makes all the difference when handling FIRPTA issues. With proactivity on the front end and the right advice, foreign buyers and sellers should not have to fear or be taken by surprise at the closing table.
We invite you to watch our YouTube video here to understand the law’s full impact on real estate transactions and clear up common misunderstandings surrounding FIRPTA’s exemptions. For immediate assistance, please call 1-561-988-0088 or email info@gefenlaw.com.
