Selling U.S. Real Estate as a Foreign Real Estate Investor

Selling U.S. Real Estate as a Foreign Real Estate Investor

When buying or selling property in the United States, foreign real estate investors have a lot to consider. From understanding U.S. real estate jargon and regulations to financing, investing in U.S. property can be confusing at times. One of the biggest sources of confusion has to do with the Foreign Investment in Real Property act of 1980. FIRPTA is a tax law created by the United States Internal Revenue Service. It requires 10% of the sale price of a piece of property to be remitted to the IRS if a foreign real estate seller is involved in the transaction.

firptaThis gets confusing because, although the residency of the seller determines whether or not FIRPTA come in to play, it is the buyer who is responsible for making sure the payment makes it to the IRS. That’s why is makes sense for buyers and sellers, U.S. residents and not, to be familiar with the FIRPTA requirements. Non-compliance with FIRPTA can put the closing at risk or result in significant tax penalties for the parties involved.

What You Need To Know to Comply With FIRPTA

Generally speaking, under FIRPTA the IRS requires 10% of the gross sale price of a property to be collected at closing and remitted to the agency if the seller is a foreign person. A foreign person, as it applies to FIRPTA, is defined as: a nonresident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate.

There are of course exceptions to FIRPTA, but for all intents and purposes, if you are working with a foreign real estate seller, you should plan on providing the 10% to the IRS. Exceptions take time to get the all-clear from the IRS and in the meantime you don’t want to be pegged as a tax evader. Significant penalties can result from non-compliance or tax avoidance.

FIRPTA Requires Both Parties Have A Taxpayer ID

Under FIRPTA requirements the funds must be sent to the IRS within 20 days of the property closing. In order for the funds to be forwarded, both the buyer and seller must have a United States taxpayer identification number. If you are a foreign resident, you may not have a taxpayer ID. If that is the case, you should complete an application to obtain one as soon as you know you’ll be purchasing property in the United States. Obtaining a taxpayer ID takes some time and you will need it in order to file taxes, which is also required under FIRPTA.

Even though the buyer is responsible for making sure the funds are paid to the IRS, the foreign real estate seller is expected to file a U.S. tax return also. The withholding agent is required to report the details of the transaction to the IRS and the foreign real estate investor needs to report the sale to the IRS as well.

Exceptions to and exemptions from FIRPTA do exist. The requirements are varied and differ is the seller is an individual or a corporation. It is always recommended that you consult with your attorney or tax accountant to determine your particular liabilities under FIRPTA.

Title Junction is a full service real estate title company serving the area of Fort Myers, Cape Coral and the entire state of Florida since 2005. The company handles a number of real estate title services for both commercial and residential properties. Employees of Title Junction can also act as a witness in courtesy closings as well as an escrow agent or a notary public.

Please contact Jennifer Ferri of Title Junction, LLC for further information @ 239-415-6574 or

Posted on March 28, 2014, in Title and tagged , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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