When purchasing real estate from a foreign seller, special rules apply. Under the Foreign Investment in Real Estate Property Tax Act, if you are purchasing or receiving real estate from a foreign person, you are required to withhold 15% of the sale price (or 15% of the value of the property) and send this amount directly to the IRS. If you fail to do this when buying property from a foreign person, you could personally be held liable for the taxes owed. So, if you purchase property of $100,000 from a foreign person, $10,000 from the sale must be sent to the IRS directly. If you fail to do this, the IRS could potentially come after you for the money owed. If you are receiving the property as a gift from a foreign person, you may still have tax responsibilities under the Foreign Investment in Real Estate Property Tax Act.
There are certain exemptions to this law, but if you are not certain what the exemptions are, you may want to speak to a real estate lawyer before you finalize your real estate sale or transfer. Legal Counsel, P.A. is a real estate law firm in Orlando, Florida that can assist you with the purchase of real estate from a foreign seller. Before you sign on the dotted line, know your responsibilities.
What are Some Exemptions to the Withholding Requirements Under FIRPTA?
There are several exemptions to the withholding requirements set forth under FIRPTA. What are some of these exemptions? Here are a few key ones:
- No withholding is required if the value of the real estate you are purchasing is less than $300,000 and you plan to use the property as your home. For tax purposes, home is defined as a place you’ll use as your primary residence for at least 50% of the time.
- If the real estate is owned by a company with domestic presence in the U.S., you may be able to avoid FIRPTA withholding.
- The buyer can submit a form to the IRS to avoid the withholding, but the IRS must provide the seller with a certificate certifying to the buyer that the seller is exempt from FIRPTA withholding.
- If the seller can show that he or she will not be gaining any money on the transaction, then you may be able to avoid withholding, but you’ll still be required to submit this documentation to the IRS
These are just some of the situations where you may be exempt from sending the 15% withholding amount to the IRS. However, it is important that you are absolutely certain that an exemption applies, because if you fail to withhold when you are required to do so, you could be personally liable for 15% of the taxes owed on the sale. Or, you may be required to provide required documentation to show that you were not required to withhold money under FIRPTA. Legal Counsel, P.A. is a real estate law firm in Orlando, Florida that can help you navigate some of the more complex aspects of real estate law. When purchasing real estate from a foreign person, the purchase can be more complicated than when purchasing real estate from a person based in the U.S. or from a U.S. citizen or permanent resident. Basically, if your seller cannot certify that he or she is a U.S. resident or citizen, you may have responsibilities under FIRPTA. Have questions? Contact Legal Counsel, P.A. today.
Who Is Considered a “Foreign Person”?
Buying real estate? A foreign person is anyone who is not a U.S. citizen or resident. A foreign person can also be a corporation or foreign partnership. Basically, when making any real estate transaction, you’ll need to know who you’re buying from. If the person or company you are purchasing real estate from is not based in the U.S., you may be required to withhold a portion of the sale price under FIRPTA. The tax liability for the seller will differ depending on whether the seller is a corporation, domestic corporation, or other entity. Have questions about how IRS withholding might play a role in your Orlando, Florida real estate sale or purchase? Contact Legal Counsel, P.A., a real estate law firm today.
Selling or Buying Real Estate? Understanding Your Responsibilities is Important
When selling or buying real estate, it is important that you follow the law and understand your responsibilities. Hiring professionals to help you through the process can go a long way to protecting your interests. Legal Counsel, P.A. is an Orlando, Florida real estate law firm that can assist you with the purchase or sale of real estate. When buying real estate, especially real estate from foreign persons, mistakes can be costly. Legal Counsel, P.A. can review your documents, and help you understand your responsibilities and rights as you move forward with your real estate sale.