I’m Buying A Home From A Foreign Seller: How Does FIRPTA Affect Me?

I’m Buying A Home From A Foreign Seller: How Does FIRPTA Affect Me?

In normal circumstances, buying a home can be a stressful experience. However, when you add in a seller who’s not a United States citizen, it can become even more complicated. To make your real estate transaction go off without a hitch, learn a little bit about the Foreign Investment In Real Property Tax Act (FIRPTA) and what it means for you when you buy a home from a foreign seller.

Explaining FIRPTA

Often abbreviated as FIRPTA, the Foreign Investment In Real Property Tax Act, requires that U.S. buyers purchasing a property from a foreign seller withhold 10% of the sales price as a “tax”. 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.

Since foreign investors in the United States aren’t taxed on most capital gains, requiring the buyer to withhold 10% of the sales price on the seller’s behalf helps ensure that the United States government receives the tax revenue. Without this withholding, the government would have no way to collect this revenue since foreign investors could simply leave the country without paying it.

Buyers will need to report the 10% withholding to the IRS by the 20th day after the date of transfer. If it’s later found that the foreign seller didn’t actually owe this 10% in taxes, he or she can file a tax return with the IRS and wait for a refund.

How A Title Company Can Help You Understand FIRPTA

If FIRPTA sounds confusing, it’s because it is! U.S. tax codes can be quite complicated, which is why it’s important to partner with someone who understands just how FIRPTA and other tax regulations can affect home buyers. Many real estate professionals do have a basic understanding about FIRPTA, especially in a location where foreign real estate transactions are common. However, there are a number of variations that can exempt a buyer from withholding funds for FIRPTA, so it’s vital that your title company and real estate agent are knowledgeable about all the guidelines and exceptions.

If you’re not sure whether you should worry about FIRPTA, talk to an experienced realtor or title company, such as Title Junction. We can help ensure that you’re complying with the strict FIRPTA regulations so that there’s no surprise.

Title Junction offers classes concerning a number of real estate topics, including FIRPTA, HUD1, title commitment and policies, signature requirements and title order process and basics.  Call to schedule your class today!