FIRPTA, the Foreign Investment Real Property Tax Act, requires a non-US citizen SELLER to have 10% of the sales price withheld as a deposit on capital gains taxes. The Buyer’s closing agent is responsible for collecting this withholding and transferring it to the IRS. Although it is the Seller’s money that is withheld, the government has made the Buyer responsible for collection.
If a home is sold for less than $300,000 AND it will be the primary residence of the Buyer(the definition of primary residence is based on specific criteria), then FIRPTA does not apply. Also, if the Seller is a US green card holder, FIRPTA does not apply.
In order to have less than the 10% withheld, the Seller must apply for a Taxpayer Identification Number (TIN) from the IRS and then the amount withheld will be the estimated actual amount of the tax. The Seller must do this much in advance of closing to insure it is completed before closing occurs. An attorney can assist you with preparing and submitting this paperwork.
FIRPTA is important if you are a foreign national who owns property in the US should you ever wish to sell it.
Realtors should beware–A real estate broker or salesperson for either party can be held liable for the tax that should have been withheld (up to the amount of compensation received), if the broker has actual knowledge that the non-foreign affidavit is false and fails to notify the buyer and the IRS. Under certain circumstances, the broker may also be liable for civil or criminal penalties.
For more information pertaining to FIRPTA, visit the IRS website at www.irs.gov.