Not a FIRPTA expert? Start here.<\/b><\/p>\n
The Foreign Investment in Real Property Tax (FIRPTA) sounds easy enough to understand at first glance: foreign sellers pay the IRS 15% of the gross sale price within 20 days of closing. Unfortunately, it\u2019s anything but simple.\u00a0<\/span><\/p>\n What\u2019s at Stake?<\/span><\/p>\n If not handled properly, FIRPTA can threaten a successful closing and be a gift from the IRS that keeps on giving since the <\/span>buyer<\/b> is responsible for all FIRPTA compliance, from the paperwork to ensure the IRS receives the money on time. The title company usually facilitates the actual transfer, but the IRS can (and will) assess the buyer personally for any uncollected withholding, plus penalties and interest.\u00a0<\/span><\/p>\n Determining Foreign\/U.S. Person Status<\/span><\/p>\n Let\u2019s start from the beginning – FIRPTA applies to <\/span>foreign<\/span><\/i> buyers. But who does that include? <\/span>According to the IRS, anyone who is not a U.S. person (U.S. citizen or resident alien)<\/span><\/a>. Even if the seller does not have a green card, they may qualify as a resident alien for tax purposes if they meet the surprisingly complex <\/span>substantial presence test<\/span><\/a>, rendering the sale not subject to FIRPTA. It\u2019s important to note that foreign person status for this purpose is not affected by whether or not the seller has a social security or tax identification number.<\/span><\/p>\n Determining the Rate<\/span><\/p>\n There\u2019s good news buried in the details, though. A seller subject to FIRPTA might be eligible for a reduced withholding rate or even a full exemption under some very common circumstances. When the buyer intends to use the home as their personal residence*, the rate reduces to 10% if the sale price is less than $1 million and is fully eliminated if the sale price is $300,000 or less. Vacant land is not eligible for the full exemption or reduced rate, even if the buyer intends to build their personal residence on the land.\u00a0<\/span><\/p>\n Shoring Up the Deal<\/span><\/p>\n Thankfully, there are a few ways to support a transaction with careful planning.\u00a0<\/span><\/p>\n\n