According to FIRPTA, the Foreign Investment in Real Property Tax Act of 1980 (updated most recently in 2016), if a buyer purchases real property, such as a house, from a foreign seller, the seller should pay the 15% tax that could be due on the property at closing (usually escrowed for on the Settlement Statement). BUT, if the Title Company is unaware that the seller is a foreigner, the tax escrow may be missed. If it is missed and the seller cannot be located, or refuses to come up with the money, the 15% tax becomes the buyer’s responsibility.
The IRS states on their website, “In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.” Colorado’s Division of Regulatory Agencies is consistent with the IRS declaring, “In complying with FIRPTA, a buyer must withhold 15% from a foreign seller’s sales proceeds and send it in to the IRS within 20 days of closing.”
So, how does a Buyer go about finding out whether or not a Seller is considered “foreign?” Can you imagine the scenarios and how sellers could potentially be offended if you just asked them if they are a foreigner? There’s actually a simple way to handle this from the time the contract is written all the way up to the time of closing…
The buyer can ask for the seller to give them a Written Certification, under penalties of perjury, that they are not a foreign person. The certification must include the sellers name as it appears in title to the property, their U.S. tax identification number, their home address (or their office address in case of foreign entity). Additionally, as your agent, I would require this document be notarized. If the Written Certification is not acceptable, the buyer or the seller can also request a Withholding Certificate from the IRS. Be aware though, the receipt of that Withholding Certificate may take upwards of 90 days. With the speed of our market here in Colorado, 90 days can seem like a lifetime.
This is one of the reasons I choose to use First Integrity Title Agency for my transactions as they handle all of this for my clients. Not all title companies take the extra steps they do to make sure my clients are covered.
Just another great reason to have an experienced REALTOR® on your team!
If you’re looking to buy or sell in the Denver-Metro area, please call me directly.
Roni Lambrecht, Independent REALTOR
Email: email@example.com / Website: www.RoniLambrecht.com
Agent ID: II100024534 / Office ID:M2005
CMRS, SFR, TRC, MCP, SCLC, CNSA, 2016 S.M.A.R.T. Award Recipient, 2017 SMDRA Leadership Academy Graduate
More info can be found on this topic at: https://www.irs.gov/individuals/international-taxpayers/firpta-withholding.