International Seller

[justme0729]

I made an offer on an Aulani (subsidized dues!) contract today. I asked the broker about the FIRPTA tax that I was worried I would be charged extra fees. Her response was:

As for the FIRPTA tax you will in no way have any implications for that. The title company withholds the tax from the sale of the proceeds that the seller has until the seller applies for a refund status so that does not fall on you at all.

Does anyone see any potential issue with this? Is there anything else I should be aware of with an international seller? I am ok with it taking a bit longer than normal.

Thank you!
P.S.- If you've been reading my other crazy threads, I decided that a smallish contract at Aulani, if subsidized dues, would be best for us so that we can alternate with WDW and get two different experiences.

 

[Mumof4mice]

If you are an international buyer you'll have to apply for an ITIN. We passed on a couple of contracts when the brokers told us the sellers were international for this reason. But ended up with an international seller anyway! (Bought through a broker who didn't disclose it) Currently trying to navigate our way through the mess…

 

[Cyberc1978]

As the closing company is withholding the FIRPTA tax, I only think it could cause a problem if both buyer and seller are internationals. By problem I mean that since the buyer would also need to obtain an ITIN number that would cause some delay in the closing process.

 

[disneynutz]

I would only buy Aulani if you had to for the home resort advantage and you intend to vacation there each year. Using Aulani to vacation at WDW booking at 7 months isn't worth it IMO. International sellers need to sign usually at a government office which is hard to do for many.

Bill

 

[eaglesrest]

I would only buy Aulani if you had to for the home resort advantage and you intend to vacation there each year. Using Aulani to vacation at WDW booking at 7 months isn't worth it IMO. International sellers need to sign usually at a government office which is hard to do for many.

Bill

I'm not so sure on that. If the price per point is reasonable, a subsidised Aulani contract has the lowest dues and a long contract life. I've seen them at the same kind of price as some SSR/AKL contracts.

This one was sent by the timeshare store a few weeks ago...

Aulani Resort Membership expires 2062 SUBSIDIZED Annual Dues $5.66 per point

100 points. August use year. 100 points coming on 8/1/19 and 100 points coming on 8/1/20. SUBSIDIZED DUES. Closing Costs: $900 Annual Dues at Closing: $0 Priced at $115/pt ($11500) Total Price: $12400

 

[justme0729]

I would only buy Aulani if you had to for the home resort advantage and you intend to vacation there each year. Using Aulani to vacation at WDW booking at 7 months isn't worth it IMO. International sellers need to sign usually at a government office which is hard to do for many.

Bill

Thank you! We actually do need the 11 month booking window... we travel at Xmas or Easter because I’m a teacher and have been watching availability at 7 months and it has been difficult to find a studio for the whole stay. We plan to go every other or every 3 years to Aulani using banking/ borrowing and use my parents DVC when we go to WDW. Aulani is way more affordable in both price per point and dues (for a subsidized contract). The contract for Aulani is 14,000 including closing costs vs. 17-18,000 for BLT and I didn’t feel I really “needed” to buy BLT because I can already get to WDW. I really do think it’s right for us if we can get a subsidized contract. I feel like now I would have all my vacationing needs covered... WDW and beach type of vacation. If I didn’t want to pay for the flight to Aulani, then it’s nice to have the flexibility to book at WDW but I don’t really plan to

 

[disneynutz]

Aulani is a beautiful resort but there is a reason that in 7 years it still has not sold out. I also worry what will happen when Atlantis is built, I expect the views to change and what about storm damage or special assessments should they file an insurance claim. Then there is the extra tax when staying there and the area sewer line issue that is taking too long to fix. Studios may make owning there a better argument, we stay in one bedrooms or larger and didn't have any issues booking at 7 months.

Bill

 

[keaster]

We also recently purchased a subsidized Aulani resale contract as an international buyer (we are in Canada, seller US.) As buyers we had to go to the US consulate in Toronto to have the documents notarized.

If we were to sell either that contract or our AKL one, they would deduct the FIRPTA tax from our sale proceeds and hold it until we applied to have it refunded.

 

[Henwen88]

Just curious, does the title company charge any more for the extra work with the FIRPTA withholding?

 

[Bing Showei]

As for the FIRPTA tax you will in no way have any implications for that. The title company withholds the tax from the sale of the proceeds that the seller has until the seller applies for a refund status so that does not fall on you at all.

Technically true. In practice, not so much. The international seller is expected to pay the FIRPTA tax, but should the IRS fail to receive FIRPTA tax payment on the sale, the IRS will go after the buyer and will put a lien on your property should this fails to be paid. You are legally responsible to make sure the FIRPTA tax is collected. The title company will normally collect and send this to the IRS upon closing which will normally address this.

In an ideal world, once you close, you never have to see those six letters ever again, and in most cases, that will probably be the case. But on one foreign transaction I had, despite the title company filing the correct paperwork, the IRS sent me a bill for the FIRPTA tax. After reaching out to the title company, they resubmitted the paperwork to the IRS. One month later, I get a second notice from the IRS threatening to put a lien on my property unless I paid the FIRPTA. After spending literally 5 hours on the phone between 6 different departments of the IRS, I came to learn two things. One, brokers downplay international sellers for a reason. Two, the IRS has a KNOWN, programming glitch specific to FIRPTA that AUTOMATICALLY sends out collection notices that use threatening language about liens and seizing of property.

The IRS advice? Ignore them until something actually happens. "They usually go away." Seriously? Sure enough, just this week, I received a "never mind" letter from the IRS that indeed the FIRPTA has been paid.

All of this despite all parties doing everything right each step of the way.

Will an international transaction be seamless for the buyer? Statistically? Probably. But in life you sometimes draw the short straw. And despite my other international contract going through without a hitch, the price would have to be ROFR ripe for me to make an offer on another international seller's contract. Short straws suck.

Just curious, does the title company charge any more for the extra work with the FIRPTA withholding?

The two closings I did with international sellers both had FIRPTA expenses baked into the closing costs. There wasn't an extra charge.

 

[justme0729]

Technically true. In practice, not so much. The international seller is expected to pay the FIRPTA tax, but should the IRS fail to receive FIRPTA tax payment on the sale, the IRS will go after the buyer and will put a lien on your property should this fails to be paid. You are legally responsible to make sure the FIRPTA tax is collected. The title company will normally collect and send this to the IRS upon closing which will normally address this.

In an ideal world, once you close, you never have to see those six letters ever again, and in most cases, that will probably be the case. But on one foreign transaction I had, despite the title company filing the correct paperwork, the IRS sent me a bill for the FIRPTA tax. After reaching out to the title company, they resubmitted the paperwork to the IRS. One month later, I get a second notice from the IRS threatening to put a lien on my property unless I paid the FIRPTA. After spending literally 5 hours on the phone between 6 different departments of the IRS, I came to learn two things. One, brokers downplay international sellers for a reason. Two, the IRS has a KNOWN, programming glitch specific to FIRPTA that AUTOMATICALLY sends out collection notices that use threatening language about liens and seizing of property.

The IRS advice? Ignore them until something actually happens. "They usually go away." Seriously? Sure enough, just this week, I received a "never mind" letter from the IRS that indeed the FIRPTA has been paid.

All of this despite all parties doing everything right each step of the way.

Will an international transaction be seamless for the buyer? Statistically? Probably. But in life you sometimes draw the short straw. And despite my other international contract going through without a hitch, the price would have to be ROFR ripe for me to make an offer on another international seller's contract. Short straws suck.

The two closings I did with international sellers both had FIRPTA expenses baked into the closing costs. There wasn't an extra charge.

Is there something I can have written on the contract to avoid this problem? Should I ask that they pay closing costs?

 

[kboo]

We are in the process with an international seller, and @Bing Showei 's description is pretty much what we've seen. The only issue has been a slight delay (7-10 days) in getting documents back from the sellers, where previous sellers in the US had returned their docs within 0-24 hours. But I think we also lucked out with fast-moving sellers before, and 7-10 days is still reasonable even for a US seller.

As for the FIRPTA withholding, it was one more form for us to sign, but closing costs are not any higher for an international seller.

 

[Bing Showei]

Is there something I can have written on the contract to avoid this problem? Should I ask that they pay closing costs?

Unless the broker can get the IRS to be party to the contract in order to make assurances that they won't drop the ball, no. Nothing will avoid the particular problem I had. The seller, broker, title company and buyer did everything right in this situation and there was still an issue.

But the truth is, for every story like mine, there are probably 19 other stories that go without issue. If it's the perfect contract for you, negotiate it on whatever terms makes sense for you to secure the contract and pass ROFR. You'll probably be fine with FIRPTA.

 

[Marionnette]

Technically true. In practice, not so much. The international seller is expected to pay the FIRPTA tax, but should the IRS fail to receive FIRPTA tax payment on the sale, the IRS will go after the buyer and will put a lien on your property should this fails to be paid. You are legally responsible to make sure the FIRPTA tax is collected. The title company will normally collect and send this to the IRS upon closing which will normally address this.

In an ideal world, once you close, you never have to see those six letters ever again, and in most cases, that will probably be the case. But on one foreign transaction I had, despite the title company filing the correct paperwork, the IRS sent me a bill for the FIRPTA tax. After reaching out to the title company, they resubmitted the paperwork to the IRS. One month later, I get a second notice from the IRS threatening to put a lien on my property unless I paid the FIRPTA. After spending literally 5 hours on the phone between 6 different departments of the IRS, I came to learn two things. One, brokers downplay international sellers for a reason. Two, the IRS has a KNOWN, programming glitch specific to FIRPTA that AUTOMATICALLY sends out collection notices that use threatening language about liens and seizing of property.

The IRS advice? Ignore them until something actually happens. "They usually go away." Seriously? Sure enough, just this week, I received a "never mind" letter from the IRS that indeed the FIRPTA has been paid.

All of this despite all parties doing everything right each step of the way.

Will an international transaction be seamless for the buyer? Statistically? Probably. But in life you sometimes draw the short straw. And despite my other international contract going through without a hitch, the price would have to be ROFR ripe for me to make an offer on another international seller's contract. Short straws suck.

This kind of kerfuffle is the exact reason that I pass when it comes to International Sellers. In life, more times than not, I draw the short straw.

 

[Henwen88]

The two closings I did with international sellers both had FIRPTA expenses baked into the closing costs. There wasn't an extra charge.

We are in the process with an international seller, and @Bing Showei 's description is pretty much what we've seen. The only issue has been a slight delay (7-10 days) in getting documents back from the sellers, where previous sellers in the US had returned their docs within 0-24 hours. But I think we also lucked out with fast-moving sellers before, and 7-10 days is still reasonable even for a US seller.

As for the FIRPTA withholding, it was one more form for us to sign, but closing costs are not any higher for an international seller.

Thanks. Resale closing costs are already getting high enough without additional charges

 

[Bruin_mouse]

Just to make it even more fun, the State of Hawaii has their own version of FIRPTA: HARPTA.

http://files.hawaii.gov/tax/legal/tir/tir17-01.pdf

I have two Aulani contracts that both used First American as the title company. Both times there was a State of Hawaii form I had to fill out. Hoping that's the last I'll hear of it. We'll see.

 

[Mumof4mice]

Technically true. In practice, not so much. The international seller is expected to pay the FIRPTA tax, but should the IRS fail to receive FIRPTA tax payment on the sale, the IRS will go after the buyer and will put a lien on your property should this fails to be paid. You are legally responsible to make sure the FIRPTA tax is collected. The title company will normally collect and send this to the IRS upon closing which will normally address this.

In an ideal world, once you close, you never have to see those six letters ever again, and in most cases, that will probably be the case. But on one foreign transaction I had, despite the title company filing the correct paperwork, the IRS sent me a bill for the FIRPTA tax. After reaching out to the title company, they resubmitted the paperwork to the IRS. One month later, I get a second notice from the IRS threatening to put a lien on my property unless I paid the FIRPTA. After spending literally 5 hours on the phone between 6 different departments of the IRS, I came to learn two things. One, brokers downplay international sellers for a reason. Two, the IRS has a KNOWN, programming glitch specific to FIRPTA that AUTOMATICALLY sends out collection notices that use threatening language about liens and seizing of property.

The IRS advice? Ignore them until something actually happens. "They usually go away." Seriously? Sure enough, just this week, I received a "never mind" letter from the IRS that indeed the FIRPTA has been paid.

All of this despite all parties doing everything right each step of the way.

Will an international transaction be seamless for the buyer? Statistically? Probably. But in life you sometimes draw the short straw. And despite my other international contract going through without a hitch, the price would have to be ROFR ripe for me to make an offer on another international seller's contract. Short straws suck.

The two closings I did with international sellers both had FIRPTA expenses baked into the closing costs. There wasn't an extra charge.

That's exactly what we wanted to avoid. And reading this makes me so nervous!

This kind of kerfuffle is the exact reason that I pass when it comes to International Sellers. In life, more times than not, I draw the short straw.

I feel like I've already been harpooned by several short straws since embarking on the "buy DVC" project. First contract, shady seller pulled out and opted for foreclosure at the last minute. Now this kerfuffle with my second contract...

 

[justme0729]

Technically true. In practice, not so much. The international seller is expected to pay the FIRPTA tax, but should the IRS fail to receive FIRPTA tax payment on the sale, the IRS will go after the buyer and will put a lien on your property should this fails to be paid. You are legally responsible to make sure the FIRPTA tax is collected. The title company will normally collect and send this to the IRS upon closing which will normally address this.

In an ideal world, once you close, you never have to see those six letters ever again, and in most cases, that will probably be the case. But on one foreign transaction I had, despite the title company filing the correct paperwork, the IRS sent me a bill for the FIRPTA tax. After reaching out to the title company, they resubmitted the paperwork to the IRS. One month later, I get a second notice from the IRS threatening to put a lien on my property unless I paid the FIRPTA. After spending literally 5 hours on the phone between 6 different departments of the IRS, I came to learn two things. One, brokers downplay international sellers for a reason. Two, the IRS has a KNOWN, programming glitch specific to FIRPTA that AUTOMATICALLY sends out collection notices that use threatening language about liens and seizing of property.

The IRS advice? Ignore them until something actually happens. "They usually go away." Seriously? Sure enough, just this week, I received a "never mind" letter from the IRS that indeed the FIRPTA has been paid.

All of this despite all parties doing everything right each step of the way.

Will an international transaction be seamless for the buyer? Statistically? Probably. But in life you sometimes draw the short straw. And despite my other international contract going through without a hitch, the price would have to be ROFR ripe for me to make an offer on another international seller's contract. Short straws suck.

The two closings I did with international sellers both had FIRPTA expenses baked into the closing costs. There wasn't an extra charge.

Do you know how much money I am risking worst case scenario if the seller doesn't pay the FIRPTA tax? How much is the FIRPTA?

 

[Mumof4mice]

15%.

I unknowingly bought a contract from an international seller (broker didn't disclose) and am currently trying to dig myself out of the hole. I have checked that the FIRPTA amount is correctly listed in the closing statement and gotten a written confirmation that the title company will submit a cheque with all required forms to the IRS after settlement.

However when I asked about the situation Bing Showei mentioned they gave me the standard answer: you will have to get an accountant. We are not an accountant.

Sigh, can only hope there's now a short straw shortage... Because they're all stuck in my back already.

 

[Bing Showei]

Do you know how much money I am risking worst case scenario if the seller doesn't pay the FIRPTA tax? How much is the FIRPTA?

You shouldn't be "risking" any money actually. As long as the title company does its job, documents everything it sends to the IRS, and sends you a copy for your records, you should be covered. Again, the onus is on you to collect the funds (which you do when you task the title company with filing it). If you boil it down, my "horror story" is just your run of the mill inconvenience. Sure, it ate up an entire day on the phone, and I learned WAAAAY more about the IRS departments that handle foreign real estate transactions than I ever cared to, but at the end of the day, I still got the contract I wanted. Knowing all the hassle would I do it again? Probably.

However when I asked about the situation Bing Showei mentioned they gave me the standard answer: you will have to get an accountant. We are not an accountant.

Sigh, can only hope there's now a short straw shortage... Because they're all stuck in my back already.

Hahaha!

[shakes fist at heavens]

CURSE YOU SHORT STRAW!!!

You won't need an accountant. There's the IRS department that advocates for taxpayers when there is a "system failure" as this situation was described to me by the IRS. The IRS actually suggested I get in touch with them when they were unable to locate my bill, but agreed that the threatening letters were legitimate. They just said I had to wait until actions were actually taken as opposed to just threatening letters. After which, I could contact the third party advocacy group. https://www.irs.gov/advocate/local-taxpayer-advocate

Yeah. Fun.