What is FIRPTA?
Until 1980, nonresident aliens could sell property in the U.S. without incurring a tax liability for on the gains. The Foreign Investment in Real Property Tax Act was enacted to secure payment of U.S. Income tax when the seller of the house is a non-resident foreign person or corporation and therefore, does not pay U.S. taxes. If the foreign seller does not pay the percentage of income tax to the IRS, then the buyer must pay these taxes.
How FIRPTA Works
FIRPTA applies to all purchases of residences priced for $300,000 or more. If FIRPTA does apply to your purchase, you have 20 days to file form 8288 with the IRS. This form acknowledges a 15% withholding tax. Penalties will apply if you do not file the form on time, withhold the required amount or submit the withholding. You can download form 8288 or find out more information about FIRPTA at the IRS Web site and type FIRPTA.
FIRPTA always required a purchaser of real estate from a non-resident foreign seller to withhold a percentage of the gross sales price to secure payment for applicable U.S. Income Tax. Historically, the base amount withheld was ten percent of the gross sales price. On February 16, 2016, settlement agencies began holding back fifteen percent from the sale of the property.
- A sales price under $300, 000
- A buyer of family member has plans to reside at the property for at least 50% of the first two years.
- The seller provides a certificate stating they are U.S. citizen or Resident alien.
- A seller may apply for and receive a withholding certificate prior to the IRS excusing or reducing withholding.
Does FIRPTA Affect You? This act will only affect you if you are buying a home from a someone who is not a United States citizen. As a buyer, it is your responsibility to identify whether the seller is not a U.S. citizen and subject to the FIRPTA withholding. Failure to comply means that you, as the buyer, could be responsible for the tax. Florida National Title can guide you through the process of purchasing a home from a foreign seller. Call us today to ensure you are following all the correct procedures and understand FIRPTA, so your transaction goes off without a hitch.
Florida National Title has years of experience guiding Florida homebuyers through the real estate purchase experience and has helped them solve the problems that come up in the process. We will decipher the “legalese” and explain what we need and why we need it each step of the way. The blogs to follow will address specific issues to guide buyers to better understand the process and to help them avoid many of the pitfalls. Call us at (561)408-0729 or visit us at.
Florida National Title Services, LLC
250 S. Central Blvd., Suite 101
Jupiter, Florida 33458
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