Title Agents Need to Remember FIRPTA When Dealing with Properties with Foreign Sellers
Across the entire nation, the U.S. has undoubtedly remained one of the top destinations for foreign home buyers with over 3 percent of all existing home sales being accounted for. Foreign nations have tended to settle in communities that are relative in location or where roots already exist giving these areas like Florida and California, a denser foreign population within the real estate market. According to the National Association of Realtors in 2022, the top countries of buyer origin were Canada (11%), Mexico (8%), China (6%), India (5%), Brazil (3%) and Columbia (3%). During this increase, it is imperative for title companies and settlement agents to remember the Foreign Investment in Real Property Tax Act of 1980 or, FIRPTA.
Unless a particular property is somehow excused from taxation under the current IRS code, agents working with foreign sellers are required to collect and remit 15 percent of the “amount realized” to the IRS. If an agent fails to do this, the buyer could be held accountable for the tax, including penalties and interest.
The “amount realized” is equivalent to the contract price.
Responsibility of Agents
An agent is anyone associated with or represents the transferor or transferee in any negotiation according to the IRS. A person is not considered an agent if he or she only participates or performs one or more of the following acts:
- Transporting documents between both parties
- Gaining the title insurance reports or any reports that relates to property conditions
- Clerical work (filing, copying, typing)
- Recording of any kind
- Receipt and disbursement of even a single part of the consideration
The FIRPTA withholding is to be withheld and it is the withholding agent’s responsibility.
Title Junction is a full service real estate title company serving the area of Fort Myers, Cape Coral and the entire state of Florida since 2005. The company handles a number of real estate title services for both commercial and residential properties.
Have questions? Give us a call at 239.415.6574.
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