FIRPTA Alert! If the Seller of a Home is a Foreign Person, This Is Extremely Important and May Be The Most Important Thing You Have Read in a Long TIme!

We are cautioning all buyers and sellers in Naples, Bonita Springs, Estero, Marco Island or throughout Southwest Florida, when the seller is a foreign person (which includes foreign company’s or entities).

Before I Go Any Further: Foreign Sellers, and Buyers from foreign Sellers, are advised to seek legal and / or accounting assistance in determining the appropriate withholding requirements.

As you know, the Foreign Investor Real Property Tax Act (FIRPTA) requires a non-resident to pay a 15% withholding tax on the sale of any U.S. Real Property Interest, TO BE WITHHELD VBY THE BUYER!

WARNING! As of July 1, 2020, The FIRPTA department of the IRS that can reduce the amount owed by a Seller has not resumed normal operations. This department is accepting applications and securing them in a “secure environment”. The IRS does not know when they will resume normal operations.

This complicated as it is, without the IRS being closed, so we are really cautioning everyone. We have a very important addendum to the sales contract, and an important FIRPTA disclosure to be signed by buyer and seller. In addition, it is extremely important for us all to talk through the IRS tax code, and make sure everyone has a full understanding. the importance cannot be said enough times.

You may get tired of me talking about FIRPTA when you are buying or selling a home with a foreign seller, but our job is to protect you, and we will make sure you understand all aspects!

Section 1445 of the IRS tax code requires foreign persons to pay US Income tax on the gains from selling US Real Estate. The duty is on the Buyer to deduct, withhold, report, and remit payment to the IRS.

The Foreign Investor Real Property Tax Act (FIRPTA) requires a non-resident to pay a 15% withholding tax on the sale of any U.S. Real Property Interest. The amount withheld is based on the gross sales price of the property. The withheld amount is credited on the subsequent tax return filed by the non-resident alien (as defined in the Internal Revenue Code).

WHEN DOES THIS MATTER? This includes but is not limited to, in most cases, a sale or exchange, liquidation, redemption, gift, transfers, etc.

WHO IT AFFECTS: Non-US Resident Sellers, and Buyers purchasing a home from Non-US Resident Sellers.

The point of FIRPTA is to make sure a seller who is a non-resident files a tax return, and pays any tax due on the disposition of a real property interest. If there is no gain, the withheld amount should be refunded after the return is filed. The law simply recognizes the difficulty of collecting money from someone from another country, so they collect it at Closing - the United States is not punishing non-residents!

One exemption is if the sales price is $300,000 or less. The tax can be eliminated if the Buyer is willing to sign an affidavit - the Buyer must state under oath that it’s his intention to occupy the property (cannot intend to lease or rent it out more than 50% of total occupancy) for the next two (2) years.

Events after the closing (loss of a job or health issues) may justify the new Owner in changing the use of the property without any penalty. Of course, proper documentation is important.

If the amount realized exceeds $300,000 but does not exceed $1,000,000, the amount withheld can drop from 15% to 10% if the property is intended to be used as a residence (as discussed in the prior paragraph).

If the sales price exceeds $1,000,000, then the withholding tax is 15%. No affidavit can reduce the 15% amount. The Seller receives credit for this amount when he files his return. The goal is to have each non-resident file a return, and pay whatever he owes. He may be entitled to a refund, or if the gain is large, he may owe more.

WHO IS RESPONSIBLE? Buyer. The Buyer is legally liable for the withholding tax if the code is not strictly followed and the government can record a lien on the Property. Civil and criminal penalties are possible, even against realtors and closing companies.

I don’t want to even write any more about this topic at this time at the risk of causing any confusion about FIRPTA.

BUT, I want everyone to understand that we are to help you, and this specific department within the IRS is not available now, and nobody know when they will be back up and running.

So, let’s start Here: If you are a Non-US Resident looking to sell your Southwest Florida home, or if you are a buyer interesting in purchasing a home from a Non-US Citizen in Souhwest Florida, ALERT! Text or Call Janet Berry at 239-450-1892 or send an email to Team@JanetBerry.com and we will all get together and handle it!