What if your Seller is not a U.S. citizen, and they are wanting to sell their home, what must happen? First, if you are a U.S. citizen and you are attempting to sell your home, you must sign what is called a FIRPTA Affidavit, also known as Non-Foreign Affidavit at the closing table. A Non-Foreign Affidavit is signed to let the IRS know that the seller of real estate is certifying under oath that they are not a foreign citizen. The only items required to fill in on a Non-Foreign Affidavit is the seller’s name, U.S. taxpayer identification number, and home address. This Non-Foreign Affidavit is designed to protect the buyer because the buyer could face serious penalties for not abiding by FIRPTA rules if they apply. (homebay.com)
In 1980, the United States created FIRPTA for foreign sellers of real estate. FIRTPA stands for Foreign Investment in Real Property Tax Act. (26 USC §1445; dsps.wi.gov). FIRPTA is “a tax law designed to ensure payment of tax to the Internal Revenue Service (IRS), as may be due, when U.S. property is sold by any ‘foreign person.’ ‘Foreign person’ under FIRTPA may include individuals and entities. FIRPTA allows for the withholding of 15% of the amount realized (sales price in most cases), which would then be remitted to the IRS unless the Seller can demonstrate an exemption under FIRPTA or qualifying statement from the IRS indicating relief from withholding or the specific amount owed.” (dsps.wi.gov). One example of a FIRPTA exemption is when the property is residential, the amount realized does not exceed $300,000, and the buyer uses the property as a residential residence for a certain amount of time.
Another good question is whether each non-foreign seller must execute a Certification of Non-Foreign statues? The answer is yes because each “foreign person” under FIRPTA is subject to withholding, even if it is a fraction of the amount. Additionally real estate agents, closing agents and title companies cannot determine if FIRPTA applies or not. The reason is “real estate agents, closing agents, and title companies are not permitted by state or federal law to provide legal or tax advice regarding FIRPTA.” (dsps.wi.gov). Therefore, if you are a not a U.S. citizen and you are trying to sell your property, you’ll have to go through a few more hurdles in order to protect the buyer.
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