Southwest Florida Title Insurance & Real Estate Blog -

We get this question a lot. And we often get it laden with defensiveness from buyers’ real estate agents who are surprised by the demands of FIRPTA on their clients. Because FIRPTA is superficially understood as a tax on the seller, the surprise is understandable. So let’s discuss WHY this is an important issue for buyers and their agents to consider and HOW they can set expectations and prepare better for a deal that involves FIRPTA.

What is FIRPTA?

We have written extensively about FIRPTA on our webpage. “FIRPTA stands for the Foreign Investment in Real

FIRPTA navigation made simple.

Property Tax Act, which is found in Section 1445 of the IRS Code. In a nutshell, the Act provides that a transferee (i.e., buyer) of U.S. real property must withhold tax if the transferor (i.e., seller) is a foreign person. When FIRPTA applies, 10% of the gross sales price must be withheld and remitted to the IRS . . . .”

Why Should the Buyer Care about FIRPTA?

FIRPTA places the burden of collecting the tax squarely on the “transferee” – that is, the buyer – on a transaction. This is the reason why real estate agents and their buyers must be prepared for the demands of the Act. Well, this and the fact that there are penalties for failure to withhold and pay the tax to the IRS. Under the Penalties paragraph from the Form 8288 instructions, we learn that the actual tax due, plus interest, may be collected from the transferee/buyer; and that a penalty of up to $10,000 could apply for “willful failure to collect and pay over the tax.”

Have your attention now? Over the next couple of posts, we’ll examine how to make the challenges of FIRPTA more palatable for real estate agents and their unsuspecting buyer clients. Ultimately, it does not need to be a big issue if you know which questions to ask and how to prepare properly. Stay tuned…

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