Do homeowners need to worry about FIRPTA?
Mr. Feichthaler,
My husband and I are the owners of a home in Cape Coral. I am a born and raised American citizen, and my husband is German, and considered a foreign national for tax purposes. We have heard that foreign sellers of property are required to withhold 15% of the sales price of property to be sent to the IRS. Since we are married, do we need to worry about FIRPTA?
— Blair D.
Dear Blair,
Given the popularity of our area with Canadians and Europeans, we often deal with foreign sellers of real estate. FIRPTA can cause confusion for closing agents that do not understand the rules and requirements, which are unnecessarily complicated (we are talking about the IRS, after all). If mishandled, there could be substantial interest and penalties for all parties involved.
First, there may be exemptions from FIRPTA available, based on the sales price and the intended use by the buyer. If no exemption is available, the IRS requires foreign withholding for any foreign owner. Since you are likely to be considered owning half each, only 15% of half the sales price will likely need to be withheld and remitted to the IRS. Many owners do not realize that this is a withholding, not a tax.
Depending on the level of profit from the sale, you may receive some or all of the withholding back from the IRS when you file your next tax return. I recommend you speak with a qualified CPA or attorney about the potential tax consequences to the sale, and be sure to factor in the potential costs prior to agreeing to a sale.
The short answer is, anytime any owner of foreign real estate is involved, FIRPTA must be addressed for the protection of both buyer and seller.
Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Museum of History, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.