Important Update on New FIRPTA Changes!
On December 18, 2015, President Obama signed into law the ‘Protecting Americans From Tax Hikes Act of 2015’. This act includes significant changes to several tax laws, in particular important modifications to the Foreign Investment in Real Property Tax Act of 1980, better known as FIRPTA. These changes become effective, today, February 16th, 2016. Since approximately 25% of the real estate purchase in Florida involve a foreign buyer or seller, it is our effort to keep you apprised of these changes. As of today, all settlement agents are required to withhold 15% of the gross proceeds from any sale of real estate by foreign sellers.
Here is a summary:
Unless an exemption or reduced rate applies, the withholding amount has been increased from 10% to 15%.
If the property is NOT acquired as a residence, or the transaction exceeds $1 Million as a sales price, 15% of the gross proceeds MUST be withheld.
For properties being acquired by the buyer for use as a residence, and which are $1 Million or less, and for which the buyer signs a “Statement of Intent to Reside” the following rates apply: a) If the sales price is $300,000 or less. withholding is NOT required. b) If the sales price is greater than $300,000 but not more than $1 Million 10% must be withheld. *please note the 10% withholding is based on the full amount of the gross proceeds.
There are 3 general ways of dealing with FIRPTA withholding:
Have the 15% withheld and file a non-resident income tax return for a refund in the year of the sale.
File an application for a reduced rate of withholding from the IRS on or before the date of closing. This is also known as a “Withholding Certificate”. The seller then is required to file a non-resident income tax return the following year.
The buyer can choose to sign a “Statement with an Intent to Reside” on properties $1 Million or less which triggers one of the steps listed above in #3. *Please note that under the current law, the buyer assumes the risk, as they are referred to as the ‘withholding agent’. It is then mandatory and required that the seller file a non-resident income tax return and pay any tax due. [This could incur penalties for underpayment if applied.]
If you’re not confused yet, you’re one of the few who isn’t. Better yet, I suggest you contact a professional in U.S International Tax Services. We at The Harris Peppe Team recommend Roberge Poskus International. You can go right to their website for additional information by clicking here: Roberge Poskus International.
We welcome your comments and feedback. Do you believe we will see any negative fallout from this new law? What are the positives and negatives in your opinion? Remember to call a real estate professional when considering a purchase or sale. With well over 80 years combined experience in the Naples Real Estate market, The Harris Peppe Team, members of The Coldwell Banker Previews International real estate company, is the largest full service real estate company in the world.
Local knowledge, Global connections. Call us today 1-239-370-0574
Thank you, and make it a GREAT day,
The Naples Real Estate Blogger