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FIRPTA for Buyers

FIRPTA for Buyers

As the Buyer, you are likely shocked and amazed to find out that FIRPTA affects you, too. Clearly the IRS has made a mistake – something is clearly wrong! Let us attempt to explain why the FIRPTA rules are written this way and hopefully provide some piece of mind.

How can I be responsible for someone else’s taxes?

It is not easy to understand or justify why the Buyer has any financial responsibility for a foreign Seller. Here is my best explanation: When the foreign Seller sells a property in the US, the US has no guarantee that they will pay the appropriate amount of tax on that transaction. The Seller could simply return to their home country and it would be nearly impossible for the IRS to collect tax once they have left. So, the IRS associates the tax to the property that remains in the US, which is now owned by you! It is really the only way for the IRS to ensure that the potential tax owing is paid.

Is it safe to purchase a home when the Seller is foreign?

Of course! Talk to your Realtor and your Closing Agent with the title company or law firm. Make sure that they are either familiar with FIRPTA or are receiving assistance from someone knowledgeable in this area. If there is tax that is required to be withheld, make sure that it is included on the HUD-1 form or the Closing Disclosure forms. There are some forms that are required to be sent to the IRS along with the FIRPTA withholding funds. One of the forms does require your signature. Never sign anything that you do not understand or that you don’t believe applies to you. Your rights and comfort are important and should always be respected.

Any final words of advice?

At the end of the day, any transaction this large has a level of uncertainty. Yes, dealing with a foreign Seller has an additional risk factor, but the professionals that you have hired and trusted to represent you will guide you around this obstacle as well. If you are still unsure, it never hurts to ask for a second opinion!

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Todd VanBuskirk
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