The local press recently published an article that spoke to the increase in real estate transactions involving foreigners. It is true that instances in which a transaction involves a foreign buyer or seller have increased substantially. We expect that trend to continue.
Transactions involving foreigners can be quite complex, and involve issues that are not present when dealing solely with US citizens. For example, navigating FIRPTA (Foreign Investment in Real Property Tax Act) can be challenging if not evaluated early and handled properly. If the seller is a foreign person under FIRPTA, the buyer must withhold ten percent (10%) of the amount realized (gross purchase price) from the foreign seller’s proceeds and send it to the Internal Revenue Service within 20 calendar days after closing. As a result, complying with FIRPTA’s 10% withholding requirement in time for closing can be challenging if the closing agent is not familiar with FIRPTA and the exceptions available to the 10% FIRPTA withholding requirement. Although, the 10% is withheld from the foreign seller’s proceeds, many don’t realize, but it is the buyer that is responsible to make sure that FIRPTA is complied with and the 10% is timely submitted to the IRS. Consequently, the IRS can hold the buyer personally responsible for the uncollected withholding amount, including interest and penalties. Therefore, both, the foreign seller and the buyer, need to seek legal and tax advice to make sure they have complied with the FIRPTA requirements and contract requirements regarding FIRPTA.
Recent changes to the Florida Realtors/Florida Bar contractforms incorporating the FIRPTA language directly into the standard contract form rather than using a FIRPTA Rider underscore (a) the large increase in transactions involving foreigners, and (b) the fact that such transactions can involve complex legal and tax issues that must be addressed early on. In next week’s blog, we will address the new FIRPTA contract provision in the recently revised Florida Realtors/Florida Bar contract forms which is substantially different than the prior Florida Realtors/Florida Bar FIRPTA Rider.
As always, if you have any questions about transactions involving foreigners, we urge you to consult with your real estate attorney.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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