WHAT IN THE WORLD LARRY: Well, Betty, there is a law known as the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). In certain circumstances, a settlement agent is required to withhold a portion of the sales price from the seller at closing if the seller is not a U.S. citizen. There are many possible scenarios and many exceptions to the general rule, but it might be required. BY RICHARD S. POE PARTNER, LANCASTER, TROTTER AND POE, PLLC
The following is a fictional (but very plausible) conversation between Betty Broker and Larry Lawyer: BETTY: Hello, Larry. This is Betty. I hope your New Year is going well, and you and your family are dodging COVID so far. LARRY: Thanks, Betty! How can I help you today? BETTY: Well, I have a closing coming up with you in a few weeks in which I am the listing agent for Manuel and Consuela Ramirez, a lovely couple from Ecuador. They plan to return to Ecuador after selling their home here, and a friend recently told them that part of the sales price might be withheld from them at the closing. Why would that be?
12 INSIGHT • May 2021
BETTY: How do my folks find out if there will be withholding on their transaction? LARRY: I am not a tax lawyer, so the Buyer and the Seller in this situation should be advised to seek tax advice from a qualified tax professional. However, here are several basic rules: 1. If the seller is selling to a buyer who intends to occupy the property as his or her principal residence and the purchase price is $300,000 or less, no withholding is required. 2. If the seller is a resident alien (holder of a green card), he or she is treated the same as a U.S. citizen and no withholding is required regardless of the purchase price. 3. If the seller applies for and obtains a FIRPTA Withholding Certificate from the IRS prior to closing, no withholding is required. Eligibility for a Withholding Certificate would be determined by a tax professional. BETTY: Well, my sellers do not have green cards, and the house is selling for $500,000, so does that mean they will not get part of their proceeds following closing?
