Helping Your Client Avoid FIRPTA Withholding

Helping Your Client Avoid FIRPTA Withholding

Real estate transactions have enough requirements and procedures without the added burden of FIRPTA Withholding, which applies to virtually all sales of U.S. real estate by foreign nationals. Fortunately, you can rely on the title and real estate experts at Marina Title, who specialize in partnering with Realtors to provide the best title solutions for their clients – including ways to avoid or minimize the impact of the FIRPTA Withholding.

The Basics of FIRPTA Withholding
Short for the “Foreign Investment in Real Property Tax Act,” FIRPTA was enacted in 1980 so that foreign nationals would be subject to U.S. income taxes when selling real property. Previously, foreign owners of U.S. real estate could sell or transfer their holdings without having to pay income tax. Now, any individual who is neither a legal resident nor a citizen of the United States – as well as any business not incorporated in the U.S. – must comply with FIRPTA Withholding, which requires 15% of the purchase price to be submitted to the IRS.

Like many federal laws, FIRPTA’s procedures and requirements are complex and widely misunderstood. For example, the withholding of 15% of the proceeds is required of the buyer or their agent, not the seller. Thus, it is the buyer who will be liable if the withholding is not done.

Moreover, FIRPTA is a withholding, meaning that the total tax due by the foreign seller could be higher or lower depending on their tax return; so, if the withholding amount is higher than seller’s actual tax liability, the IRS may credit the difference back to the foreign national.

Even though FIRPTA does not otherwise impose any restrictions on transactions involving foreign sellers, the added time and cost of compliance can be off putting to either party. Buyers unfamiliar with the law may get spooked by the potential liability to the IRS if the withholding is not properly handled, while foreign sellers are unsurprisingly not keen on the idea of having a good chunk of their sales proceeds withheld.

Hire Experts in FIRPTA Withholding
The success of your business rests on being able to provide the most affordable and efficient real estate services possible. That is why teaming up with Marina Title is the best thing you can do for your clients. Our broad range of real estate expertise includes FIRPTA Withholding, which we understand in up-to-date and meticulous detail. Not only can we ensure full and timely compliance with this federal requirement, but we can help foreign sellers and investors reduce their withholding amount, or even avoid it altogether.

Our firm knows of several types of properties and transactions that are exempt from the FIRPTA Withholding. For example, if the buyer or their immediate family plans to use the property as a personal residence for the first two years after the purchase and the purchase price is no more than $300,000.00, the FIRPTA Withholding will not be required. In order to take advantage of this exemption, however, the buyer must be willing to sign an affidavit attesting to their use of the property.

If the same circumstances apply, but the sales price is greater than $300,000 and less than $1 million, then FIRPTA Withholding will be required but at a lower rate of 10%, rather than 15%.

If the subject property is being sold or transferred as an interest in a domestic corporation, with stock that is regularly traded in a formal securities market, FIRPTA Withholding is also avoided.

These are just a few ways FIRPTA Withholding can be minimized or circumvented. There are other exceptions that may apply to reduce or eliminate the withholding depending on a range of factors an circumstances that our attorneys are deeply familiar with.

As a real estate professional, your time and resources are better spent helping your clients navigate through all the other aspects of the property transaction. Let us handle the FIRPTA requirements and other title and settlement issues so that you can become the go-to agent to your foreign investor clients.

To learn more, call (305) 901-5628 or email us at info@marinatitle.com!