FIRPTA for Realtors

Whether you have had clients subject to FIRPTA withholding requirements before or this is your first time encountering a foreign seller, it is always a little bit of an unnerving situation. Let us help guide you so that you can feel confident in the message you are sharing with your clients.

How do I know if the Seller is foreign?

Beyond the obvious, listen for clues that this might not be the Sellers main residence. They may mention their family back home, currency conversion rates, not carry a mortgage because they paid in cash or have many questions about seemingly common home buying procedures. It is not always simple to determine whether FIRPTA might apply, that is our job!

What are my responsibilities?

If you know or suspect that the Seller is foreign and don’t bring that to the attention of the Buyer, then you may be partially responsible for the FIRPTA tax that should have been withheld. Your responsibility is limited to the amount of commission that you earned on the sale – but that is not a risk we would recommend!

Should I just avoid Foreign Sellers?

Of course not! The important thing is to make sure that the Buyer and the Closing Agent (the title company or law firm) is aware that the Seller is foreign. Then be sure to connect the Seller with someone who can help to determine if FIRPTA withholding tax does apply, the correct rate, answer their questions and help them to minimize those taxes.

I like to be proactive – what can I do to help?

If the sale price is less than a million, then you can include in the listing that any Buyer is willing and able to sign an affidavit saying that they plan to use the property personally. Click here to learn more about the Personal Use Affidavit. If the Buyer signs the Affidavit, then the FIRPTA withholding rate can be reduced from 15% to 10% for properties with a sales price of between $300,000 and a million. If the sales price is less than $300,000 and the Buyer signs the Affidavit, then the FIRPTA withholding rate can be reduced from 15% to 0%!! While you might be limiting the number of Buyers interested, the benefits could be significant for your foreign Sellers.

Is FIRPTA forever?

FIRPTA is just a withholding tax. It is the IRS’s way of trying to ensure that any tax that might be owed is collected up front. There are many ways of reducing the withholding tax – but there is no one size fits all. When the clients file their US Non-Resident tax returns, any excess withholding will be refunded at that point. Think of FIRPTA as more of a timing issue and not a lost cause. Make sure you are working with a CPA familiar and comfortable with all of the options so that they can correctly advise your clients on the best options for their situation.

Any final words of advice?

Ask your clients early in the process if they might be foreign. If they are, then don’t worry – just do your part to set them up for success. Work with a closing agent and a CPA familiar with FIRPTA and make sure your clients understand that the process is just going to be a little bit different for them.

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