FIRPTA – Foreign Investor Tax

The Tax Act For Foreign Investors

FIRPTA stands for “Foreign Investment in Real Property Tax Act” and became 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.

Why You Should Care

All Home Buyer’s in the U.S. should consider this law important because there are so many foreign investors who own property in this country now and if they don’t pay this tax you might.FIRPTA states that the BUYER the responsible party for payment of this tax to the IRS! Since taxes are not normally part of a Realtor’s job, we learned about FIRPTA so we can protect you.FIRPTA BUYER NIGHTMAREThe Worst Case Scenario

You bought your house two years ago. You never met or saw Mr. Seller, so of course you never even thought about what Mr. Seller’s nationality was. His name is David Smith and Mr. Seller Smith was from Australia. A few months after you got your house Mr. Smith moved the family back to Austrailia. The title company did not do a FIRPTA withhold from Mr. Smith’s proceeds and he did not pay or file the FIRPTA tax form. Now the IRS wants their tax money and YOU WOULD OWE THE IT!

According to FIRPTA,f the seller is a Foreign Person, the buyer may have to withhold up to 15% of the SALES PRICE at the close of escrow as a tax. In cities with a low Foreign Person Investor ownership, Realtors many not know about this tax. If you are a Foreign Person Seller, you need to consult a tax expert and you may qualify for an exclusion. Exclusions can take 30 or more days or more so plan ahead! You may also want to read our FIRPTA for Sellers blog.

What Happens If The Tax Is Not Withheld

Since the law makes the 15% of the SALES PRICE withhold the buyer’s responsibly, the IRS could come after the buyer for payment. Because of this possibility, it is important for a buyer to ask questions and have an experienced agent representing them.

FIRPTA’s Foreign Person Defination

According to Wikipedia, Foreign persons includes individuals who are not U.S. citizens or resident aliens, corporations organized outside the United States, and nonresident estates and trusts. See 26 USC 7701. Note that partners, not partnerships, are subject to tax, so foreign status is determined at the partner level. However, see  withholding tax for an overview of exceptions regarding foreign partnerships.

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.

Our Number 1 Goal with every client is to protect them. If you are going to buy or sell a property in Las Vegas in the future, contact us today.

Blog Written By: Kurt Grosse  Kurt is a Top-Producing 20+ Year Realtor in Las Vegas, Nevada. His skills as a retired Nevada structural engineer make him the best and most unique Realtor in town. 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!

Revised 11/2019