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Should a buyer be concerned with the FIRPTA?

October 31, 2014
By ERIC P. FEICHTHALER - Real Estate Law , Cape Coral Daily Breeze

QUESTION: I have a contract to purchase a house in Cape Coral. The house is owned by German citizens as an investment. The contract refers to something called "FIRPTA," which I have heard is an additional tax on sellers when they are not U.S. citizens. Is this anything for me to be concerned about?

ANSWER: In an effort to ensure the Internal Revenue Service receives the appropriate tax on gains of sale of real property by non-U.S. citizens and entities, The Foreign Investment in Real Property Tax Act was passed by Congress in 1980. Generally, 10 percent of the gross sales price to the seller must be withheld. However, even though this is an amount the seller will not receive as net proceeds, it is your responsibility as buyer to ensure the 10 percent is withheld, paid to the Internal Revenue Service and remitted to them with the proper forms. Yes, anytime you are working with a foreign seller you should be concerned about FIRPTA.

There are certain exemptions where the buyer will not be required to withhold the 10%, the most prominent one where the buyer is purchasing the property as a residence for a price of $300,000.00 or less. Additionally, the seller can apply to the IRS for a withholding certificate, which can reduce or eliminate the requirement for the 10% withholding. These certificates take several weeks to obtain, so if your seller wishes to be exempt from withholding, they should contact a tax or legal professional as soon as possible to obtain this certificate.

As a buyer, if you fail to withhold, you could be held responsible for the entire 10% that should have been withheld. You may also be responsible for interest as well. Consider choosing a law firm or title agent who will act as withholding agent on your behalf to ensure compliance with IRS regulations.

Eric P. Feichthaler has lived in Cape Coral for 27 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as Mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 13 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.

 
 
 

 

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