International Sellers-FIRPTA Tax

[Bruin_mouse]

I've posted about it a few times in various places, but wanted to create a thread for posterity sake. If you're going to buy from an international seller beware that the sale is subject to a withholding under the Foreign Investment in Real Property Tax Act (FIRPTA). Basically to ensure that foreign sellers of real estate pay their taxes, the IRS requires that 15% of the sale proceeds are withheld for taxes. If this is not done, and a foreign seller does not pay their taxes, a buyer that is a US taxpayer will be on the hook. If you are buying from a foreign seller I'd recommend you get in touch with your title/escrow company and get from them in writing that they are going to do the FIRPTA withholding.

I recently bought from a Canadian seller and had read horror stories about buyers getting a bill from the IRS after the fact, so I had got confirmation from the escrow agent that they would make the FIRPTA holding. That's why I was a bit shocked when I got a letter from the IRS last week saying the tax had been reduced to $744 and payment was due in 20 days. Turns out that they had sent that letter to me and the seller's accountant, and that the escrow company will make the payment after all.

I don't think this is a reason to not buy from an international seller but it is something to be aware of.