WHAT IS FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) was established in 1980 to ensure that foreign owners of U.S. property pay their share of taxes on the profit when they sell. It requires the buyer of real property from a foreign seller to withhold a portion of the sales price and remit the tax to the Internal Revenue Service (IRS). FIRPTA also applies to the sale of U.S. real property held by foreign-owned corporations, partnerships, trusts, and estates. If you are representing a foreign seller or your buyer is purchasing property from a foreign seller, it’s important to understand the obligations of the buyer and seller with regards to FIRPTA.  This is a discussion you should have with your sellers before listing the property. 
It is the buyer’s responsibility to withhold the tax, but the tax charged comes from the sales price. If the buyer fails to comply with the FIRPTA withholding requirements, they may be responsible for the tax owed in addition to any interest and/or penalties. It is an estimated withholding (about 10-15% of the selling price) depending on the sales price and if an investment property. 
GAR has included new verbiage in the seller brokerage engagement agreement requiring sellers to complete a FIRPTA Affidavit (F101 & F104).

• FIRPTA Affidavit: Unless Seller is a “foreign person”, as that term is defined in Section 1445(f)(3) of the Internal Revenue Code, Seller shall deliver to the closing attorney at closing a FIRPTA (Foreign Investment in Real Property Tax Act) Affidavit indicating that Seller is not a “foreign person”. If Seller is a “foreign person”, additional taxes may need to be withheld at closing.
  

Buyers and foreign sellers should seek assistance regarding their withholding obligations to help reduce their tax liability or with post-sale tax compliance. Your clients should seek advice from an experienced tax professional and an attorney who can assist with FIRPTA compliance.  
FIRPTA Solutions can also help your client navigate through any FIRPTA issues. https://www.firptasolutions.com

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