FIRPTA – Foreign Investor Tax – Buyers

Tax Act For Foreign Investors

IMPORTANT EVEN IF YOU ARE NOT A FOREIGN INVESTOR!

Do You Know What FIRPTA Is?

“What does FIRPTA mean?” is the first question most people ask. FIRPTA stands for Foreign Investment in Real Property Tax Act which became a law in 1980. This Federal Law protects the U.S. Government’s interest in collecting taxes owed from real estate transactions that involve foreign sellers. Las Vegas Home Buyer’s should consider this law important because there are so many foreign investors who own property and if they don’t pay, you might.

Why Should You Care?

“I’m not a Foreigner Investor, why should I care?” is usually the second question we get asked.  FIRPTA actually makes the BUYER the responsible party for payment of this tax to the IRS! Because we believe that a Realtor’s job is to protect their client in every possible way, my Team and I automatically talk to every party in a transaction asking about nationality. Since  taxes are not normally part of a Realtor’s job, we know about FIRPTA so we can protect you.

[Commercial Break: Interview your Buyer’s Agent. Interview Us! Does your Realtor know about FIRPTA? We do. Since the Builder or Seller that you buy from pays us, you deserve the BEST Buyer’s Agents possible on your team- Us. Kurt is a retired structural engineer. When you buy a new construction property he monitors the construction until the drywall is up sending you pictures. For pre-owned homes, we look for and show you any defects and flaws that we find on the floor, walls or ceilings. Protect yourself- by having Kurt and Terri protect you FREE OF CHARGE!   OK. Commercial over!]

THE SCENARIO:

You’ve lived in your house for two years. You never met or saw Mr. Seller, so of course you have never thought about what Mr. Seller’s nationality was. His last name is Smith and Mr. Seller Smith was actually from Australia.  The title company did not withhold from Mr. Smith’s proceeds so he did not pay or file the FIRPTA tax form. Guess what?  Exactly, YOU WOULD OWE THE TAX! 

If the seller is a foreigner, under this law the buyer may have to withhold up to 15% of the sales price at the close of escrow as a tax. It is critical that this issue be addressed early on so that the seller is made aware. I would not count on most Realtors knowing about this tax. If Mr. Seller’s agent did not tell him about this tax, it could be a big problem for you if he’s just finding out about it. NOTE: If you are a Foreign Investor Seller, you need to consult a tax expert and you may qualify for an exclusion. Read our FIRPTA blog under “Sellers” in the Menu above.

What Happens If The Tax Is Not Withheld

Since the law makes the buyer responsible for this tax , even though it is the seller’s tax, the IRS could come after the buyer for payment. Because of this possibility it is important for a buyer to have an experienced agent representing them.

Who Is Considered To Be A Foreign Person

A foreign person is anyone who is not a U.S. citizen or U.S. entity. If a foreign person has a green card or is a student or employed, they may qualify for an exclusion.

Number of days the Seller was in USA in the current year.

Actual number of days the Seller was in USA divided by 3 for last year.

Number of days the Seller was in USA divided by 6 for the year before that.

Other conditions may also affect the amount of the FIRPTA tax owed. The bottom line is that your Buyer’s Agent representing you needs to be experienced with the FIRPTA tax.

TIP: If we are not your Realtors and you’re finally signing papers, if FIRPTA hasn’t been mentioned, you need to bring it up. You’ll want to verify that a “CERTIFICATE OF NON-FOREIGN STATUS OF TRANSFEROR” will be or was completed by Mr. Seller. This document should keep you away from the IRS regarding FIRPTA.

WHEN MULTIPLE CITIZENSHIPS OWN A PROPERTY:

What happens when 2 or more people own the house and one owner is a Foreign Person? If the others are U.S. Citizens, the IRS has actually used common sense about this! The answer is that the percentage withheld is based on the percentage of ownership that the Foreign Person owns.

Consult An Attorney

FIRPTA is a complicated law, and our blog only scratches the surface. If you are selling your home and think FIRPTA affects you, text or call for an appointment with us. You may also consult an accountant and/or an attorney- familiar with the law. Most title officers are familiar with FIRPTA’s requirements. Keep in mind that they are not attorneys and cannot give legal advice. If you are going to buy a property in Las Vegas in the future, see the next paragraph. If you already purchased property and want to know if you’re liable, re-read your documents or consult a professional.

If our Team is your Realtor, we know this law well. If you are a Foreign Person selling a property, we start addressing FIRPTA the day you sign our listing agreement. We want to avoid a withhold of your money at closing. If we are your Buyer’s Representative and you are buying a resale property, our contract addresses FIRPTA. We notify Mr. Seller to address FIRPTA on Day One. If we are not your agent, please remember this article and talk to your agent. There is a big difference in the caliber of Realtor you can choose. Since a New Construction Builder or the Seller pays our fee, you should be working with the BEST Buyer’s Representation you can find! It’s US! We protect you in many ways and we’re FREE of charge to you! Call or Text us anytime: 702-788-8822