Foreign National Seller of Florida Real Property- FIRPTA Withholding FAQ’s!

If you are a foreign national or you are assisting a foreign national client in selling real estate, you are most likely familiar with Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”).  When you are handling a real estate transaction involving a foreign seller, depending on the value of the property and how it will be used, the transaction is generally subject to a 15% withholding on the purchase price due to FIRPTA.   The Act places the responsibility of the Buyer for this withholding.

For the purposes of FIRPTA, a foreign seller is defined as either a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate.  A person is considered to be a resident alien under FIRPTA if they have legal permanent resident status in the U.S. (they have a Green Card), and they meet the substantial presence test which sets a minimum number of days they must be physically present in the United States.  

The formula for the substantial presence test is as follows:

  • 31 days during the current year;
  • 183 days during 3-year period
    • All the days present in the current year, &
    • 1/3 of the days present in the first year prior, &
    • 1/6 days present in the second year prior.

If you are buying or selling a property, and the Seller is a foreign national, it is highly recommended that you obtain legal counsel to guide you through the complex particulars and ensure that the financial obligation you are about to embark on is drafted specific to your needs and in your interest. For any questions or assistance, please contact us as we would be happy to guide you.

Foreign Sellers- What to know about FIRPTA guidelines

U.S. Realtor’s, rental agents, and closing agents are encountering an increasing number of situations that involve foreign persons selling their U.S. real estate.

The sale of a U.S. real property interest by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1980 (also known as FIRPTA) income tax withholding. This Act taxes non-U.S. investors on gains from U.S. real property investments.

*Please note that FIRPTA applies to what it defines as a U.S. real property interest, which includes not only interests in land, but interests in buildings, mines, wells, crops and timber as well.

What does this mean for foreign owners? When an individual foreign person sells U.S. real property, the transferee, usually settlement officers or closing agent’s, are required to withhold ten percent of the amount realized on the sale. There are special rules for foreign corporations, which will not be discussed in this Article. The amount realized is generally the amount paid for the property commonly known as the purchase price.

The ten percent must be withheld at closing and be remitted to the Internal Revenue Service (IRS) no later than 20 days after the transfer.

What does this mean to real estate and closing agents? It is important for agents to inform foreign owners of the FIRPTA withholding requirement or the requirement to provide a tax identification number (TIN). If you do not inform or give enough notice to the foreign owners of the FIRPTA requirements you may be held liable.

There are some exceptions to the FIRPTA withholding, and the most common is that the transferee is not required to withhold tax in a situation in which the purchaser/buyer purchases real estate for use as his or her home and the purchase price is not more than $300,000.00.

Gulati Law deals with these types of issues on a regular basis with their foreign clients. We also assists with contract preparation and real estate closings, as her law firm is equipped to issue title insurance, owner’s policies and lenders policies. Raised by a family of real estate brokers, she has the experience and knowledge as well as being a licensed Real Estate Agent herself.

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