FIRPTA – Foreign Seller Real Estate Taxes in Naples and the United States
What is FIRPTA? FIRPTA stands for Foreign Investment in Real Property Tax Act and it applies to all foreigners who own property in the United States. Basically when a buyer purchases a property from a foreign owner, FIRPTA applies and the buyer is required to submit a tax return as well as 10% of the sales price to the Internal Revenue Service.
FIRPTA was created over 30 years ago and was intended to ensure that when property in the United States is owned by foreigners that the taxes due from the sale are paid. The law makes the buyer responsible for collecting and submitting 10% of the sales price as the funds are originating from the buyer.
The funds come from the seller’s proceeds but the buyer has the ultimate burden of making sure the money is sent and if not, the buyer can be held responsible and be required pay the taxes if this is not complied with. Even if the property is mortgaged for more than it’s worth, the buyer is still responsible, even if it is a short sale situation.
There are exceptions in FIRPTA which include when the home sales price is less than $300,000 and the buyer signs an affidavit that he/she will occupy the home for at least half time it’s used over the next two years. There’s a caveat, if the buyer signed the affidavit and didn’t live there, the IRS could potentially come after them and make the buyer pay the taxes due.
So, what’s the best solution? Ask that the foreign investor/seller apply to the IRS prior to the closing and get an official determination of the tax due, if any at closing.
If you’re a foreign buyer or seller of property in Southwest Florida, please contact us for more information regarding how we can assist you and make your investment purchase or sale an easy, well-informed transition.
