Buyer's Realtor Susan called my office in a panic yesterday, turns out the seller is subject to FIRPTA and not cooperating with the sale contract paragraph that deals with Foreign Sellers. Seller simply states, it is Buyer's obligation to handle FIRPTA. Susan thinks Buyer may have to put up 15% to cover the FIRPTA deposit and the Buyer wants to walk away from the deal. Buyer wants the home, but not at a 15% markup. Good news Susan, the Buyer does not put up or pay the 15%; the FIRPTA deposit comes out of the Seller's end. FIRPTA is a deposit of 15% of the contract sale price that comes out of Seller's proceeds and is deposited with the IRS.
Buyer's only involvement is being responsible to ensure the 15% is withheld from Seller and is sent to IRS within 20 days of closing. As long as the FIRPTA money and FIRPTA documents are postmarked to IRS within 20 days of closing, that's it for the Buyer. No more obligation on the Buyer's part, all the risk and responsibility for FIRPTA are in the envelope that is sent to IRS, so send it with tracking and ask the Title Company for a copy of the FIRPTA check that was deposited by the U.S. Treasury. IRS usually cashes the check within a few days of being received.
Now Foreign Seller's part is a bit more involved, the Seller's FIRPTA deposit is at IRS but Seller may not owe this money. FIRPTA is a deposit, it is NOT a tax. So, the Seller can recover their money, net of any unsettled federal tax owed. Ordinarily, there is little to no federal tax owed on the property sale as the Seller can deduct what they paid for the property, major improvements, selling and closing costs, and then they only begin to pay tax after the gain exceeds more than 44,625. before they see the 1st dollar in tax. If the Seller previously occupied the sale property as a primary address, and Seller meets the section 121 exclusion, Seller may be able to exclude the 1st 250,000 in gain. So, often, the entire FIRPTA deposit is recoverable for the Foreign Seller.
My firm Tax Solutions - FIRPTA Consulting offers services https://www.global-taxsolutions.com/tax-services/firpta/ that include free answers to your questions regarding FIRPTA or other federal tax matters no matter what State you may be in. Call us (281) 578-1040 or visit us https://www.global-taxsolutions.com/ or send an email to info@taxss.com we are here to help you close today! Although we are based in Texas, being federally licensed, we work with Buyers, Seller, Realtors and Title Companies across the United States. www.taxss.com
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