Real estate Q&A: When a foreign national sells property they own in the U.S., a portion of the sale needs to be held back and sent to the IRS by the buyer.
FORT LAUDERDALE, Fla. – Question: I am a foreign national who owns a condo in Florida that I want to sell. I am being told that a portion of the sales price needs to be sent to the IRS at the closing. Is this true? And if so, how can I get it back? – Sonia
Answer: Yes, when non-resident foreigners sell a property in the United States, a portion must be held back and sent to the IRS.
The Foreign Investment in Real Property Act of 1980, known as “FIRPTA,” requires the property’s buyer to remit 15% of the purchase price to the IRS. You read that correctly; it is the buyer’s responsibility to collect and submit the funds to the tax collector. If the buyer fails to do this, they can be held responsible for paying the tax, which is one of the reasons that sellers need to prove their residency when selling property.
Since the sellers do not live domestically, it makes sense to make the local person responsible for collecting the tax from the government’s perspective.
There are exceptions to having to do this. For example, the withholding can be avoided if the property is selling for less than $300,000 and the buyer plans to live in the property for the next two years. At the same time, buyers need to be careful when being asked to agree to this exception because they may be liable for the tax if they move out of the property within two years.
The withholding works like other types of taxes, like when payroll taxes are sent to the IRS from each paycheck, and in both cases, the taxpayer must file a tax return to true up with the government and possibly get a refund.
If the seller plans far enough ahead, it is sometimes possible to file the tax return in advance and obtain permission from the IRS to withhold less money. Like most tax questions, this can be complicated, so it is crucial to get the advice of a tax professional.
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