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What is FIRPTA in Florida Real Estate?What is FIRPTA in Florida Real Estate?

What is FIRPTA in Florida Real Estate? – Exclusive Insights

14 Apr 2021

Over the years, the state of Florida has attracted a vast number of immigrants, especially from Latin America. As a result, many foreigners are constantly buying and selling real property in the area, including commercial buildings, homes, etc. 

 

In this sense, non-US citizens in Florida are exposed to FIRPTA when they need to sell any type of real estate on American soil.  In this article, you will discover what FIRPTA is in Florida real estate. 

 

FIRPTA in Florida Real Estate – An Overview 

 

The Foreign Investment in Real Property Tax Act, also known as FIRPTA, was established in 1980 to impose income tax on the foreigner who disposes of US real property interests. This federal law requires foreign sellers to pay income tax on the sale of real property.

 

The purpose of FIRPTA is to align foreigners with US residents in terms of income taxes. Typically, US residents must report the sale of real estate and expose themselves to potential income tax on the value obtained from the transaction.

 

This federal law imposes the liability on the buyer to collect and pay the required amount by FIRPTA. Regarded as the “withholding agent” in the process, the buyer must hold back a percentage of the sales price paid to the seller. 

 

In Florida, it is common that the required percentage is collected from the seller’s proceeds at closing and later remitted by the closing company on behalf of both parties. 

 

Paying FIRPTA-related Taxes – Understanding in Detail 

 

The tax rate required by FIRPTA is 15% of the property sales price. However, some exemptions can be applied depending on the situation. Also, the FIRPTA tax may be refunded in part or in full to the seller after the IRS has approved his/her income tax return. 

 

In case the buyer is an individual and is willing to attest the purpose of using the newly-acquired property as a residence for an annual period, there is no tax due for purchases with prices lesser than $300,000.

 

With a similar attestation and a purchase price between $300,000 and $1,000,000, the FIRPTA tax rate is reduced to 10% of the sale price. 

 

The Florida closing company will report and pay over the owed amount (on the buyer’s behalf) by the 20th day after the closing date. It is worth noticing that delays and late submissions may result in penalties and interest on the tax payable. 

 

Understanding FIRPTA – A Case Study 

 

To illustrate this concept, let us utilize a fictional situation. Dominique is a French citizen who owns a vacation home in Florida. He wants to sell his home and utilize the funds to establish a business in his own country.

 

As a non-US citizen and non-US resident, Dominique is exposed to FIRPTA. After a few months, Dominique finds a prospective buyer, Maurice, who is a native US citizen and a Florida resident. 

 

First, we need to consider that FIRPTA is a withholding tax, which means it is an amount set aside for potential taxes in the future. When Dominique sells his property to Maurice, he will earn US income, which means he will need to pay an estimated income tax. 

 

When Maurice buys Dominique’s home, he will need to reserve 15% of the selling price and make a payment on Dominique’s behalf to the IRS. In case Maurice does not hold back 15% of the total amount, he might have to pay it himself. 

 

Consequently, an estimated amount of the income generated in the property sale will stay at the IRS until Dominique files a US tax return. In case Dominique ends up owing less than the amount paid in advance, he can get a refund of the difference back.

 

How a Title Company Can Help You to Deal with FIRPTA

 

Dealing with FIRPTA can be a complex and demanding process. Even though the parties involved in the transaction are allowed to do it on their own, the best approach is to rely on the service of an expert closing company to deal with FIRPTA. 

 

In Florida, a closing company specialized in title and escrow will explain the FIRPTA proceedings in detail, guiding you throughout the process and ensure that every detail of the transaction is in place. 

 

Plus, the assistance of a title company will include expert tax attorneys that will ensure full compliance with all related laws and regulations.

 

Do You Need Help to Deal with FIRPTA tax? – Contact Us Now 

 

At Marina Title, we have a team of title experts to ensure you will not have trouble when dealing with FIRPTA. 

 

Waste no time with uncertainty. Call us at (305) 901-5628 or email us at Romy@MarinaTitle.com to schedule an initial consultation and learn more about our company and our services.

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