If you are a foreign property owner thinking of selling your Venice FL home or condo, you will need to know about FIRPTA, the Foreign Investment Real Property Tax Act.
WHAT IS FIRPTA?
FIRPTA is a withholding, not a tax. The amount withheld is applied to the seller's total US tax liability for the calendar year in which the property is sold.
The buyer of your property is responsible for making sure the FIRPTA withholding is collected and sent to the IRS. Typically, this is collected at the property closing. The buyer incurs liability to the IRS if this withholding is not collected and the property seller has outstanding taxes due.
Effective 2/16/2016, the FIRPTA withholding tax law will change.
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A mandatory withholding of 15% will apply to property sales over $1,000,000;
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If the sales price is $300,000 or less on a property used as a residence, withholding is not required;
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If the sales price is $300,000 to $1,000,000 and the property is used as a primary residence, the withholding amount is 10%.
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IS FIRPTA MANDATORY FOR A FOREIGN SELLER?
In most situations, yes. However, a foreign seller may avoid the FIRPTA withholding if they have a Taxpayer Identification Number (TIN), or if they can show they have a Green Card as a resident alien, or by meeting the "Substantial Presence" test in accordance with IRS regulations. Documented 1031 exchanges also may negate a FIRPTA withholding.
The foreign seller may also avoid FIRPTA charges at closing by providing an IRS Withholding Certification proving that their total tax liability is less than the 10% FIRPTA withholding.
It is important to understand that since the buyer of the property will incur tax liability if FIRPTA is not collected and the seller does not fulfill their tax obligations, the buyer may elect not to waive collecting FIRPTA at closing.
CONSULT A PROFESSIONAL
Your Realtor should be aware of the broad ramifications of how FIRPTA may affect you as a foreign seller when listing your property for sale.
However, because FIRPTA is tax law, you should always consult a qualified title agent, accountant, or real estate attorney, to determine if you will be required to pay the FIRPTA withholding at closing.