How Does FIRPTA Work?

Unless you are knowledgeable about tax laws, you’re likely wondering what FIRPTA is and how it works. Don’t worry; you aren’t alone. We’re here to help you understand all of the ins and outs of FIRPTA in real estate:

 
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What is FIRPTA?

FIRPTA stands for Foreign Investment in Real Property Tax Act. It is a tax law that ensures that foreign real estate owners pay taxes on any US real estate property that they sell. 

Why Was FIRPTA Created?

Domestic citizens living within the United States pay federal and potentially state taxes straight out of their income. However, foreign persons pay limited taxes and are not taxed at all on capital gains, including real estate. By enacting FIRPTA, the government ensures they get their share when foreign persons sell their real estate. It applies to nearly every real estate transaction involving US property owned by foreign persons. Foreign persons are defined as: 

  • Nonresident alien individuals;

  • Foreign corporations;

  • Foreign estates;

  • Trust; or

  • Partnership. 

How Much Is Withheld?

FIRPTA requires all applicable home buyers to withhold either 10% or 15% of the seller’s gross sales proceeds to submit as a deposit to the IRS due within 20 days of closing. The amount of withholding depends on the price of the home. It may be within the best interest of the buyer to abide by FIRPTA laws because the payment covers the amount for which they could be held liable. 

Is Anyone Exempt? 

There may be a potential exemption to FIRPTA real estate withholdings. Some circumstances that may be applicable include: 

  • The sales price of the home is less than $300,000, and the buyer intends to occupy the property for more than 50% of the time for two consecutive 12-month periods; 

  • The seller provides written certification that they are not a foreign person; 

  • The buyer receives a withholding certificate from the IRS

Ask a Florida Title Company

As a title company in Miami, FL, we have the experience and the knowledge you need to help you through your real estate transaction. At Flamingo Title Services, it is our mission and our privilege to provide you with a seamless home closing experience. Call us today at 305-722-0533. Although we cannot offer legal advice, we can help answer your questions about the home closing process and help it go as smoothly as possible.

 

Marcia Dukov