Legal FAQs for REALTORS®
Foreign seller and FIRPTA
What special rules apply to a buyer who is purchasing property in Texas from a foreign seller? (Updated Feb. 24 2016)
The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires buyers in certain transactions involving foreign sellers to withhold up to 15% of the amount realized by the foreign seller for federal taxes. The amount realized is usually the sales price.
If the buyer does not plan to use the property as the buyer's primary residence, 15% of the sales price must be withheld and reporting is required.
If a property’s sales price is $300,000 or less, and the buyer plans to reside at the property, then nothing needs to be withheld and no reporting is required.
If the property's sales price is between $300,001 and $1,000,000, and the buyer will use the property as the buyer's primary residence, 10% of the sales price must be withheld and reporting is required.
On sales exceeding $1,000,000, 15% must be withheld and reporting is required regardless of how the buyer uses the property.
The buyer should use IRS Form 8288 and IRS Form 8288-A to withhold the tax. For help filling out these forms, the buyer can visit the IRS webpage devoted to FIRPTA and the forms, or consult his attorney.
Does either agent have liability in a transaction with a foreign seller? (Updated Feb. 24, 2016)
Possibly. If the seller provides a certification stating that he or she is not a foreign person, the buyer will not be required to withhold any tax if the sale results in a gain for the seller. However, if the buyer has knowledge that the certification from the seller is false and accepts it anyway, the buyer will be responsible for paying the 15% tax on the amount realized by the seller on the sale of the property.
The same holds true if either agent has actual knowledge that the certification is false. If that agent does not notify the buyer of this knowledge, the agent will be responsible for paying the tax to the IRS.
What if I represent a foreign seller and he cannot afford to have the 15% tax taken out of his proceeds? (Updated Feb. 24, 2016)
The seller may request an adjustment of the amount withheld from the IRS by filing a withholding certificate application (IRS Form 8288-B). The buyer or buyer’s agent can also request this adjustment.
The IRS will generally act on the request within 90 days of receipt of an application. A seller who applies for an adjusted withholding must notify the buyer in writing that the certificate has been applied for no later than the closing date. Since the seller’s agent may not make the request on behalf of the seller, the seller’s agent should discuss the withholding certificate with the seller as an option during the negotiation process.
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