By Diane Donley, Republic Title North Coit, Member of CCAR's Affiliate Committee
FIRPTA (The Foreign Investment In Real Property Tax Act of 1980) is a tax law that may impose a tax on certain defined "foreign persons" selling U.S. real estate. It is important to determine as early in the transaction as possible if this law may apply to your sales transaction.
Certain foreign sellers may be subject to tax equal to a percentage of the gross sales price, unless the transaction is exempt from FIRPTA withholding. To determine if this law applies to your sale, see a CPA or tax attorney who is an expert in FIRPTA to discuss the withholding process and possible exemptions.
Title companies are not responsible for determining whether the transaction will qualify for an exception or an exemption, so as an agent, it is imperative to alert your sellers of the possible applicability of this law at the beginning of the escrow process--or even before. If the tax is not withheld and paid at closing and is later found to be owed, the buyer will be liable for the tax plus all applicable penalties and interest. Ask your title company their procedure for collecting FIRPTA funds.
Here are some helpful links from the IRS to learn more about FIRPTA and ways to obtain an Individual Tax Identification Number, apply for a W-7, and fill out the W-7 form:
For more information on title-related issues, please email firstname.lastname@example.org and your message will be provided to CCAR's Affiliate Committee.