When buyers need to withhold tax on the seller’s behalf

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07/29/2014 | Author: TAR Legal Staff

If I buy property in Texas from a foreign owner, do any special rules apply?

Your transaction may be subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

If the sales price of the property is $300,000 or less and you or a member of your family will reside in the property at least 50% of the time during the first two years of ownership, you can ignore FIRPTA.

If the property’s sales price is greater than $300,000 or you have no plans to reside at the property, FIRPTA applies. Determine whether the seller will realize any gain from the transaction—in other words, will the seller walk away from closing with any money? If so, you must withhold 10% of the amount realized by the seller—usually the sales price—for federal taxes.

Use IRS Form 8288 and IRS Form 8288-A to withhold the tax. For help filling out these forms, visit the IRS webpage devoted to FIRPTA and the forms or consult your attorney.

Have a question about buying, selling, or leasing property in Texas? Ask us. Not all submitted questions can be answered.

Categories: Buyers
Tags: firpta, buying, foreign sellers, taxes


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Legal disclaimer

The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on texasrealestate.com. Any legal or other information found here, on texasrealestate.com, or at other sites to which we link, should be verified before it is relied upon.

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