Foreign Buying Flipside
Wednesday, October 30, 2013
Orlando REALTOR® | November/December 2013
With more foreign buying comes more foreign selling, so it's good to be familiar with FIRPTA
By Sarah Gulati, Esq.
Much attention is paid to the purchase of U.S. real estate by foreign buyers, especially as Florida accounts for 23 percent* of the entire country’s transactions involving foreign buyers. But what about the natural flipside: the sale of U.S. property by foreign sellers?
Since REALTORS® are increasingly encountering situations that involve foreign persons selling their U.S. real estate, it is increasingly important to be familiar with the requirements that the Foreign Investment in Real Estate Property Tax Act (FIRPTA) places on foreign sellers.
The sale of a U.S. real property interest by a foreign person is subject to FIRPTA income tax withholding. The act taxes non-U.S. investors on gains from U.S. real property investments, which FIRTPA defines as interests in land, buildings, mines, wells, crops, and timber. In addition, FIRPTA requires foreign sellers to provide a tax identification number.
When an individual foreign person sells U.S. real property, the transferee —usually a settlement officer or a closing agent — is required to withhold 10 percent of the "amount realized” on the sale. (There are special rules for foreign corporations that are not discussed in this article.) The amount realized is generally the amount paid for the property commonly known as the purchase price.
The 10 percent must be withheld at closing and be remitted to the Internal Revenue Service (IRS) no later than 20 days after the transfer.
There are some exceptions to the FIRPTA withholding, the most common of which is that the transferee is not required to withhold tax in a situation in which the buyer purchases real estate for use as his or her home and the purchase price is not more than $300,000.
*NAR 2013 Profile of International Home Buying Activity
Attorney Sarah Gulati, Gulati Law, P.L., is a member of the Central Florida Real Estate Attorneys Council. She can be reached at sarah@GulatiLaw.com.
CFREAC provides this column on real estate law issues as a service to ORRA members to provide a general understanding of the law on various topics interest, not as substitute for individual legal consultation, and should not be relied on in specific situations without consulting with a real estate attorney. For more information, visit www.centralfloridarec.com.