Foreign seller and foreign buyer issues

[Belle091507]

Hello everyone!

I received some paperwork to fill out from the title company while we are in ROFR. The paper asks me to chose a Tenancy ( with myself and my husband buying I think it's just the husband and wife option?) and also states that because my seller is a foreign seller a 10% is being withheld for taxes but that the title company will file the appropriate paperwork on our behalf. It states that I can fill in my social security number and all will be handled. The problem is that I'm a foreign buyer(Canada) and I do not have a US social security number( I have a canadian equivalent). I asked my agent what I should do and have been informed that I need to apply for a ITIN(individual tax ID number) prior to closing. She referred me to a company and said their might be a cost associated but wasn't sure how much. She also stated she would communicate with the company and get back to me. In all my research I had never heard/seen this so I was quite surprised!

Does anyone have any experience with any of this and can help me out?

 

[Belle091507]

Wow, just went on the IRS website and I'm even more confused...

 

[Belle091507]

Ok, from what I have been told I need to fill out the W7 form and check the other box. I'm pretty sure the rest of the info is strait forward. Does anyone know how long it takes to get a number? I hope I don't delay or miss closing because of this :/

 

[sechelt]

I bought resale in 2009 and don't remember applying for anything like that. Even when I bought direct in 2010, I met with a U.S. Notary and there was no mention of anything extra needed. I think I may have given my SIN.

Wish I could help more. Good luck with ROFR.

 

[Belle091507]

I bought resale in 2009 and don't remember applying for anything like that. Even when I bought direct in 2010, I met with a U.S. Notary and there was no mention of anything extra needed. I think I may have given my SIN. Wish I could help more. Good luck with ROFR.

Thanks! The laws changed in July of 2012 and were further restricted in August of this year. Apparently the law itself has existed for a while but wasn't really being enforced. I spent all day yesterday reading the IRS website and communicating with the title company and my agent and now I'm waiting to hear back from an authorized agent (for the IRS) in my area to see what steps I need to take.

Hopefully this gets resolved quickly but it was definitely eye opening. I would have offered on a different contract if I had known what a headache I would get!

 

[montrealdisneylovers]

Is this strictly because the seller is foreign? Does it have anything to do with you being Canadian? I know we did not have any such problem when we purchased in 2011. As we are thinking of adding on, I am getting somewhat concerned.

 

[drusba]

The law is referred to as FIRPTA, the Foreign Investment in Real Property Tax Act, and applies to all sales of real property (including timeshares) located in the United States by sellers who are residents of foreign nations. It is designed to assure that any capital gains taxes on the sale that might be owed actually get paid. The amount withheld is 10% of the purchase price which is usually far more than the actual capital gains taxes ever end up being. For example if the seller receives less than the amount he originally paid per point, he actually has a loss and not any capital gains subject to tax. The amount is withheld at closing and the seller has to submit a tax form to get the money back.

In such a sale, both the seller and buyer must provide either a social security number or a tax ID number. There is a form for requesting a tax ID number that can be submitted to the IRS for issuance of the number (not sure how long it takes these days but before the government shutdown it was usually weeks not months).

If you are dealing with a broker and/or a closing company then it is highly likely that both are very familiar with these sales, what is needed to be done, and have the forms for doing it.

 

[CailinFig]

The law is referred to as FIRPTA, the Foreign Investment in Real Property Tax Act, and applies to all sales of real property (including timeshares) located in the United States by sellers who are residents of foreign nations. It is designed to assure that any capital gains taxes on the sale that might be owed actually get paid. The amount withheld is 10% of the purchase price which is usually far more than the actual capital gains taxes ever end up being. For example if the seller receives less than the amount he originally paid per point, he actually has a loss and not any capital gains subject to tax. The amount is withheld at closing and the seller has to submit a tax form to get the money back.

In such a sale, both the seller and buyer must provide either a social security number or a tax ID number. There is a form for requesting a tax ID number that can be submitted to the IRS for issuance of the number (not sure how long it takes these days but before the government shutdown it was usually weeks not months).

If you are dealing with a broker and/or a closing company then it is highly likely that both are very familiar with these sales, what is needed to be done, and have the forms for doing it.

The 10% that is withheld at closing...does it get sent to IRS first? I am buying from a foreign seller and saw a post where a buyer received a bill because the foreign seller did not pay the taxes. Just a little nervous. We are going through a broker and they did comment the closing company would withhold the 10% for the tax.

 

[drusba]

The 10% that is withheld at closing...does it get sent to IRS first? I am buying from a foreign seller and saw a post where a buyer received a bill because the foreign seller did not pay the taxes. Just a little nervous. We are going through a broker and they did comment the closing company would withhold the 10% for the tax.

If it is not withheld at closing, the buyer can be liable if the seller does not pay. If dealing with a reputable and knowledgeable broker and closing company, the 10% should be withheld at time of closing. It will either be sent to the IRS within 20 days after closing or put in escrow. It can be put in an escrow account only if a request is made to the IRS before closing for a withholding certificate (another form you can get from the IRS), which is essentially a document that sets out the financial terms and shows the taxes that will be owed from the sale and that they are less than the 10%. It can then be held in escrow until the IRS agrees to the withholding certificate and, if that occurs, the seller can then get any money that is in excess of the actual tax that will be owed. Closing companies may or may not even want to deal with that issue and may insist on just doing the withholding and sending the money to the IRS and let the seller do all the work thereafter to get the money back. If you have any question of whether the 10% will be withheld, you should write a letter to the seller, broker and closing company insisting on the 10% withholding at time of closing to comply with FIRPTA..

 

[Belle091507]

Is this strictly because the seller is foreign? Does it have anything to do with you being Canadian? I know we did not have any such problem when we purchased in 2011. As we are thinking of adding on, I am getting somewhat concerned.

As drusba mentioned, it's only because the buyer and seller are foreign that I'm havering the issue. The broker an title agency ha told the seller to get their tax id number initially because if the 10% law but the broker never mentioned to me to get one as well. It was only when I got documents requesting my social security number that I questioned the title agency and was informed that I needed a tax id number as well. If the seller had been a us citizen and I a foreign buyer this wouldn't have been the case.

 

[CailinFig]

If it is not withheld at closing, the buyer can be liable if the seller does not pay. If dealing with a reputable and knowledgeable broker and closing company, the 10% should be withheld at time of closing. It will either be sent to the IRS within 20 days after closing or put in escrow. It can be put in an escrow account only if a request is made to the IRS before closing for a withholding certificate (another form you can get from the IRS), which is essentially a document that sets out the financial terms and shows the taxes that will be owed from the sale and that they are less than the 10%. It can then be held in escrow until the IRS agrees to the withholding certificate and, if that occurs, the seller can then get any money that is in excess of the actual tax that will be owed. Closing companies may or may not even want to deal with that issue and may insist on just doing the withholding and sending the money to the IRS and let the seller do all the work thereafter to get the money back. If you have any question of whether the 10% will be withheld, you should write a letter to the seller, broker and closing company insisting on the 10% withholding at time of closing to comply with FIRPTA..

Thank you!

 

[marie1981]

I am Canadian, one of the contract I bought was owned by British people. It was exactly like the other contrats I bought which were owned by US people....

I use Fidelity for all of them et the same closing company for all of them... Really, I did not see any difference during the whole process. This was in 2011....

 

[Belle091507]

I am Canadian, one of the contract I bought was owned by British people. It was exactly like the other contrats I bought which were owned by US people.... I use Fidelity for all of them et the same closing company for all of them... Really, I did not see any difference during the whole process. This was in 2011....

The law changed last year and then got modified again this past August. That is why you had no problem.