Buying from an international seller?

[IsDVCForMe?]

It’s been so many years I don’t remember.

It’s an issue for the buyer because the tax code says so. https://www.irs.gov/individuals/international-taxpayers/firpta-withholding
It is the buyer’s responsibility to pay the tax to the IRS. It’s sort of like when your employer w/holds your income tax from your paycheck & sends that money to the IRS - the IRS makes you the buyer responsible for w/holding the real property tax owed from what you pay the seller & sending that money to the IRS.
There have been cases where the tax was not paid or not correctly calculated/paid & the IRS demanded that money from the buyer.
I’ve always assumed it was set up that way because it’s far easier for the IRS to get the money from a U.S. taxpayer v. a foreign non U.S. taxpayer .

Yep, makes sense it’s set up that way.

 

[airjay75]

t’s an issue for the buyer because the tax code says so. https://www.irs.gov/individuals/international-taxpayers/firpta-withholding
It is the buyer’s responsibility to pay the tax to the IRS. It’s sort of like when your employer w/holds your income tax from your paycheck & sends that money to the IRS - the IRS makes you the buyer responsible for w/holding the real property tax owed from what you pay the seller & sending that money to the IRS rather than the seller, just like your employer sends your fed w/holding directly to the IRS.
There have been cases where the tax was not paid or not correctly calculated/paid & the IRS demanded that money from the buyer.
I’ve always assumed it was set up that way because it’s far easier for the IRS to get the money from a U.S. taxpayer v. a foreign non U.S. taxpayer .

You've got it basically right. I'll elaborate just a bit. The purpose of FIRPTA is to ensure that non-U.S. residents pay tax on capital gains realized form the disposition of U.S. real property. If you buy and sell U.S. real property, you are subject to U.S. capital gains taxes, regardless of whether you're a U.S. citizen or a non-U.S. citizen.

But, if you don't live in the U.S. and aren't otherwise required to file a U.S. income tax return, it's a bit difficult for the IRS to collect any taxes due on the capital gains. So, you require the buyer to withhold 15% of the total purchase price and pay it to the IRS. Then, the non-U.S. person can file a U.S. income tax return and reclaim some or all of that, depending on what the amount of the capital gains actually were.

Of course, most timeshare sales are at a loss. So, the international seller can get a withholding certificate in that situation to have no tax withheld. Of course, even if they didn't do that, they could still file a tax return with the U.S. and get it all back too, but I imagine most sellers would rather not do that. With either path, the international seller has to get an individual taxpayer identification number or ITIN from the IRS, which is another level of paperwork added to the process.

I imagine a lot of international sellers don't want to deal with all of this and/or drag their feet with a lot of these steps. Probably why Disney just takes a pass - not worth the trouble when there are plenty of other contracts they can ROFR.

 

[IsDVCForMe?]

You've got it basically right. I'll elaborate just a bit. The purpose of FIRPTA is to ensure that non-U.S. residents pay tax on capital gains realized form the disposition of U.S. real property. If you buy and sell U.S. real property, you are subject to U.S. capital gains taxes, regardless of whether you're a U.S. citizen or a non-U.S. citizen.

But, if you don't live in the U.S. and aren't otherwise required to file a U.S. income tax return, it's a bit difficult for the IRS to collect any taxes due on the capital gains. So, you require the buyer to withhold 15% of the total purchase price and pay it to the IRS. Then, the non-U.S. person can file a U.S. income tax return and reclaim some or all of that, depending on what the amount of the capital gains actually were.

Of course, most timeshare sales are at a loss. So, the international seller can get a withholding certificate in that situation to have no tax withheld. Of course, even if they didn't do that, they could still file a tax return with the U.S. and get it all back too, but I imagine most sellers would rather not do that. With either path, the international seller has to get an individual taxpayer identification number or ITIN from the IRS, which is another level of paperwork added to the process.

I imagine a lot of international sellers don't want to deal with all of this and/or drag their feet with a lot of these steps. Probably why Disney just takes a pass - not worth the trouble when there are plenty of other contracts they can ROFR.

It seems most people are scared off by the length of the process. That doesn’t bother me as much as the 15% being withheld. Being the buyer, I really don’t want issues with the IRS.

 

[airjay75]

It seems most people are scared off by the length of the process. That doesn’t bother me as much as the 15% being withheld. Being the buyer, I really don’t want issues with the IRS.

I haven’t personally been through the process but as long as you maintain evidence of either the 15% being withheld or the seller’s withholding exemption certificate, I don’t think I’d worry about that aspect. But I’m also a tax attorney, so I’m probably more comfortable with that side of things .

I’d be more worried that the seller just doesn’t understand the whole process or will get confused and have to submit things multiple times. Just like with US sellers, some are going to be pretty informed and motivated to get it done and some are not. Those issues are just amplified with an international seller because there is more required of them than merely getting some docs notarized.

Haven’t thought about it before, but it could be worth asking a broker with an international seller whether the seller already has their ITIN for FIRPTA purposes. If they do, I’d take that as a good sign that they’d be more of the side of the spectrum of knowing what they’re doing. Doesn’t mean they aren’t if they don’t, but could be a good sign.