REALTOR® ATTORNEY JOINT COMMITTEE
FIRPTA for Realtors® By: Peter J. Pike, Esq., Pike Law Firm, PA
W
hat do you do if you are at a listing appointment and find out that your seller is not a United States citizen or resident? The Sarasota-Manatee area is the state’s fourth most popular area for foreign buyers of real estate. At some point in time, those owners are going to sell. When they do, you need to help them understand their obligations under FIRPTA.
UNDERSTANDING FIRPTA FIRPTA is the Foreign Investment in Real Property Tax Act. If applicable, the buyer is required to withhold fifteen percent of the amount realized (which is usually the sale price) from the money paid to the seller and pay it to the IRS! The seller can file their tax return the next year and try to get a refund of any overpayment. How do you know whether your seller is a U.S. citizen or has a green card? Pull up the property’s tax bill. If it is being sent to an address in a foreign country, then it is very likely that FIRPTA will apply. An example of a script for your listing pitch is – “I just want to make sure that you are fully protected when you sell – are you aware of the Foreign Investment in
Real Property Tax Act? If you are not a U.S. Citizen or do not have a green card, the buyer will have to withhold 15 percent of the purchase price and pay it to the IRS. Do you know whether this applies to you?” If they are not sure whether FIRPTA applies you should have them contact their tax advisor (accountant) or a knowledgeable real estate attorney. There are documents that can be filed before closing that can limit the amount of money to be withheld. Be careful as to how much you help your seller with FIRPTA issues. Informing them of the issue and referring them to their tax advisor or to a local accountant that handles these matters is fine. Getting the forms and helping them fill out the forms is not!
FIRPTA EXCEPTIONS One exemption to FIRPTA withholding is if the house is selling for not more than $300,000, the buyer intends to live in the house for at least half the time that it is occupied during the next two years, AND the buyer signs a certification to that effect. I always advise agents not to rely upon this exemption, because there is no benefit, but a possible liability to the buyer. If the buyer does not occupy the property for half of the time that it is in use, the buyer can be liable for the tax not withheld, penalties and interest. To avoid liability, the buyer must demonstrate a change of circumstances that the buyer could not have reasonably foreseen, which caused the change of plans. Even if the Buyer ultimately prevails, the costs of defense could be substantial. Sellers should consider FIRPTA compliance as soon as possible. The best thing to do is refer your customer to a knowledgeable real estate attorney or accountant so they can get the advice that they need. •
UPCOMING CLASS FIRPTA FOR REALTORS® Tuesday, April 6
10:30 - 11:30 a.m.
[ Online ]
The Sarasota-Manatee area is the state’s fourth most popular area for foreign buyers of real estate. At some point in time, those owners are going to sell. When they do, you need to help them understand their obligations under FIRPTA. Members Free. This article is meant for educational purposes only. It is not intended to serve as legal advice and should not be used as a substitute for consultation with an attorney.
14 | ELEVATE [ APRIL 2021 ]
