13 Thing First Time Home Buyers Should Know About Foreign Investment in Real Property Tax Act (FIRPTA)
Design by Diana Walton- Houston First Time Home Buyer Specialist
Good morning and welcome to Houston first time home buyers edition. As a first time home buyer in Houston, if you are in the process of purchasing your first home, or will be soon, it will be your responsibility, (by way of the title company- means the title company usually handles it.) to not only collect a withholding amount, but to make sure it gets paid to the IRS, if the seller of the house you are in the process of buying or will buy is considered a foreign person. Here are a few more things to know about
Foreign Investment in Real Property Tax Act (FIRPTA) is a tax law that imposes income tax on foreign persons selling U.S. real estate.
Foreign persons who dispose of U.S. real property interest must treat any gain or loss from the transaction as gain or loss were income effectively connected with a U.S. trade or business.
This law affect real property located in the United States and the Virgin Islands.
Real property also includes mines, wells and other natural deposits.
The amount of FIRPTA withholding is dependent on a variety of factors but is typically 10% - 15%.
The buyer, not the seller, is responsible for collecting and for making sure the IRS is paid the appropriate amount of tax.
In most cases, the buyer must complete IRS Forms 8288 and 8288-A, to enter the amount subject to 10% or 15% withholding.
If the buyer fails to withhold the required amount, the buyer may be held liable for the taxes.
The IRS defines a foreign seller as a non-resident alien individual.
If a seller holds a U.S. citizenship or a permanent resident card, that person is typically exempt from FIRPTA withholding.
An international tax identification number (ITIN) has nothing to do with whether a seller is a foreign person or U.S. person. These numbers are issues by the IRS to help individuals comply with U.S. tax laws and to process tax returns for individuals that are ineligible for Social Security numbers. They serve no other purpose.
If an individual is neither a U.S. citizen nor a permanent resident, the buyer can use the substantial presence test to determine where the person in question spends their time. If necessary, a buyer can also file a FIRPTA affidavit, to attest the seller’s non-foreign status.
While Real Estate Agent or Broker can assist by way of providing a home seller with a list of CPAs or attorneys familiar with FIRPTA, it is typically outside the scope of our license to determine whether or not a seller has a tax obligation under FIRPTA. For more information, please visit FIRPTA withholding at irs.gov
As always, thank you so much for stopping by. Remember, if you are thinking of purchasing your first home, please contact us. We are here to help. We have been helping Houston first time home buyers since 2011 and we can help you. I hope you have an amazing day. Until next time...Diana
Source: Texas Association of Realtors.
Source: Internal Revenue Service.
