FIRPTA- The Foreign Investment in Real Estate Tax Act By Jeff Stewart, CCIM, SRES

FIRPTA – One of the last paragraphs of the residential listing specifically asks if the seller is a ‘foreign person.” It fails to fully explain why.  The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the more onerous and misunderstood federal tax laws when it comes to real estate. The concept is simple: Foreign sellers of real estate must pay a 10% or 15% tax upon the sale of U.S. real estate. It sounds like a reasonably straight forward tax until one discovers, often to great financial distress, that the buyer is ultimately responsible. How is that? The buyer is legally tasked with acting as the withholding agent and for making certain that the IRS is paid the correct amount of tax. In other woods, the buyer is on the hook. As unreasonable as this might seem, one can see why the IRS might pose this burden on the buyer since the seller is likely out of the country. Also, any money sent past the U.S. border is almost certainly beyond the reach of the IRS . . . so it is easier to hold the buyer responsible. . . fair or not.

I can gratefully say that I have not knowingly had to deal with this complicated process.  The key point is that it is imperative to positively know if the seller is a foreign person, hence the question on the listing contract. Unfortunately, one can see why a seller might be a little less than forthright in answering. The FIRPTA withholding process is not for amateurs. A knowledgeable title company is extremely important in such a transaction.  However most importantly, It is critical to engage attorneys and CPAs with the required expertise when conducting a transaction that falls under FIRTPA.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM   Broker Associate

Stanberry REALTORS   jstewart@stanberry.com