If you are a foreign person buying or selling property in our Orlando market, how does FIRPTA apply to your real estate transaction? Today I am joined by Michael Lwin of Nona Title to answer that question for you.
First, FIRPTA stands for the Foreign Investment in Real Property Tax Act, which was introduced in 1980. Although it is called a tax, according to Michael, it is really a withholding amount. This amount is basically set aside to pay for potential taxes down the road, and it is applied to a transaction when a foreign investor wants to sell a property that they’ve purchased here in the U.S.
If you are a foreign buyer, this means FIRPTA does not affect you unless you buy from another foreign seller. If you’re a seller, FIRPTA requires that 15% of the realized gains from that sale is sent to the IRS as a withholding amount. The IRS holds that money until you file a tax return showing what you owe.
For example, if you sell a property for $100,000, the IRS will withhold $15,000 of that sale price until you submit the final paperwork showing if it’s a gain or a loss. If it is a rental property and you had more expenditures and you show a loss, they will send that sum back to you.
Most title companies bring in a third-party company to handle FIRPTA because the money has to be withheld from the closing and sent to the IRS within 20 days. If the property the foreign investor is selling is being used as a primary residence, then the FIRPTA regulations can be bypassed.
If you would like to know more about the rules and regulations of FIRPTA, click on this link.
If you have any title questions for Mike, you can give him a call at (407) 556-3798 or visit www.nonatitle.com.
As always, if you have any other questions or real estate needs, please feel free to call or email me anytime. I would be happy to help you.