Getting ready to close, not understanding tax liability

[annmarieda]

We just received our closing documents. In it, I notice the FIRPTA. Now, to me it looks like this normally just comes off the gross sale and the buyer doesn't need to do anything. However in our case, the seller is foreign so we have to come up with 10% to pay the IRS on top of the sale..closing..etc?

I am so confused. No one told me anything about the tax liability. If they had, I would not have offered full price to the seller since essentially if I have to pay 10% more to the IRS then our cost per point is 10% higher.

Does anyone know anything about this?

TIA

 

[agie65]

We just received our closing documents. In it, I notice the FIRPTA. Now, to me it looks like this normally just comes off the gross sale and the buyer doesn't need to do anything. However in our case, the seller is foreign so we have to come up with 10% to pay the IRS on top of the sale..closing..etc?

I am so confused. No one told me anything about the tax liability. If they had, I would not have offered full price to the seller since essentially if I have to pay 10% more to the IRS then our cost per point is 10% higher.

Does anyone know anything about this?

TIA

Tax comes out of sale, sellers money not buyers.

 

[KAT4DISNEY]

That should be the responsibility of the seller - not the buyer. Or at worst you withhold 10% of the proceeds but it shouldn't be an additional unless that was part of the contract. You ought to contact the closing agent about it.

 

[annmarieda]

but one of the pages in my closer docs states that the buyer needs to set aside 10% to pay the IRS since the seller is foreign.

 

[annmarieda]

That should be the responsibility of the seller - not the buyer. Or at worst you withhold 10% of the proceeds but it shouldn't be an additional unless that was part of the contract. You ought to contact the closing agent about it.

It was not a part of the contract, but I wonder if it is just a "known" that I missed. To close I need to send a cashiers check for the amount due. Withholding 10% of that would bring my required total down and thus I would not be able to close, right? The page in my closing docs that notes I need to pay the IRS 10% of the gross sale does not make it sound like it is coming out of the amount I am sending in to the title company.

 

[Minniesgal]

You need to call your closing company and get some clarification. Sounds to me like ther ought be a typo in the docs

 

[annmarieda]

You need to call your closing company and get some clarification. Sounds to me like ther ought be a typo in the docs

I called hours ago.... still waiting... Although maybe not that calmly

I guess until I get clarification I am not going to send in closing documents. One minute reading I do suggests that closing agent withholds out of gross sale and pays the IRS. The next, it suggests that if agent fails to do so the IRS can come back at me for the tax. Honestly, I would trust if the agent is suppose to...they would... so my worry is not that they wouldn't.

I keep coming back to that page in the closing docs where it specifically states that the buyer MUST withhold. If I am the one withholding then to me it would seem the closing agent is not. If they are not, then the withholding would be on top of what I am sending them. what I am sending to the title company is the amount in the contract.

 

[KAT4DISNEY]

Patience.

It's probably that the closing agent has withheld but just wait to send anything until you know for certain.

 

[annmarieda]

Patience.

It's probably that the closing agent has withheld but just wait to send anything until you know for certain.

I know... patience. I just was so excited that our documents finally came. (we were notified on 5/23 that we passed ROFR and that the file was sent to title company)

I guess this is just one more day to wait out...

 

[drusba]

I assume you are going through a broker or closing company? They know the money needs to be withheld at the time of closing with a FIRPTA transaction and it should be done as a matter of course. The typical procedure is that the closing company sends the money directly to IRS and and the seller submits the form needed to get the money back if he has no real gain. However, call your broker or closing agent to assure the closing is going to have the withholding of any necessary sum.

 

[Galun]

This should have nothing to do with you as the buyer. The tax (if any) is payable by the seller and the withholding should be done by the closing company.

Are you sure the wording is buyer withhold 10%, not 10% withheld from buyer? The closing document applies to both parties. It could be a disclosure to the seller that 10% funds from buyer will be withheld.

 

[annmarieda]

I assume you are going through a broker or closing company? They know the money needs to be withheld at the time of closing with a FIRPTA transaction and it should be done as a matter of course. The typical procedure is that the closing company sends the money directly to IRS and and the seller submits the form needed to get the money back if he has no real gain. However, call your broker or closing agent to assure the closing is going to have the withholding of any necessary sum.

Yep.. and they called and confirmed all of this. It was just the one paragraph in the closing documents that had me crazy.

This should have nothing to do with you as the buyer. The tax (if any) is payable by the seller and the withholding should be done by the closing company.

Are you sure the wording is buyer withhold 10%, not 10% withheld from buyer? The closing document applies to both parties. It could be a disclosure to the seller that 10% funds from buyer will be withheld.

You are correct that it is done by the closing company, but had there not been a closing agent we would be responsible. The statement that had me crazy was

"buyer's responsibility to withhold: Section 1445 of the IRS code requires all buyers who purchase real property in the US from a foreign seller to withhold 10% of the total purchase price and pay that amount to the IRS... "

Another part of the same paragraph states "buyer will be liable to the IRS for the amount of the tax owed and all applicable penalties and interest"


Basically, the taxes are withheld from the sellers proceeds. The closing agent files the forms and pays the IRS. (if there was no closing agent we would have to do that) That money then goes into our "tax account" Then if the seller does not in fact owe that money they can apply to have it pulled back out.

I just didn't see where there was this "extra" amount so I feared it was in addition to. We don't owe extra though...