By Russ Nance | VP Escrow Operations
When does the Foreign Investment in Property Tax Act (FIRPTA) apply? FIRPTA concerns should arise when you are handling a transaction which involves a foreign seller. The IRS rules place the responsibility for withholding potential tax due in the amount of up to 15% of the purchase price on the buyer of real property from a foreign entity. If the IRS does not receive these taxes due to them, they can seize the real property of the buyer.
Here are some issues that are taken into consideration when determining if the withholding is necessary. Is the seller a U.S. Citizen, a Resident Alien with a Green Card, a Resident Alien, or a U.S. Entity? Is the purchase price less than $300,000 and does the buyer plan to use it as a primary residence?
We as title agents cannot give legal or tax advice, so if you find yourself in a FIRPTA situation, the parties involved should seek advice from legal counsel or a tax CPA prior to closing. To ensure all goes smoothly, we would prefer written instructions from the attorney or CPA prior to closing.