What foreign sellers need to know about FIRPTA.
As you know, the Colony’s combination of location, views, lifestyle and amenities make it an irresistible place to call home. I specialize in helping families buy and sell homes in the Colony, including sellers from overseas.
Many of my overseas clients have asked me about recent changes to the Foreign Investment in Real Property Tax Act (FIRPTA). In the coming months, I’ll be hosting seminars about FIRPTA and other issues impacting foreign sellers with BJ Cottrell of Naples-based Cottrell Tax & Accounting. BJ has handled hundreds of FIRPTA sales throughout Southwest Florida. Our seminars will be exclusively for Colony property owners. In the meantime, I’ve asked BJ to provide a basic introduction here.
BJ, how does FIRPTA impact foreign sellers?
When a person from overseas owns real property in the United States and sells it, 15% of the property’s sales price must be withheld by the person buying the property. That is, 15% of the foreign seller’s sales price is withheld from the seller. The good news is that foreign sellers can get part of that money back sooner rather than later if they take the proper steps.
What kinds of steps BJ?
One option is to file what is known as a Withholding Certificate with the Internal Revenue Service. About two months after the certificate is filed, the foreign seller will receive a portion of the money withheld. The amount reimbursed depends on factors such as the capital gains on the property and the seller’s tax bracket.
Another option is to simply file one’s taxes and wait for the refund. Of course, if you sell your property early in the year, the wait for your refund will be considerable, probably until February or March of the following year.
Sounds like filing a Withholding Certificate is the way to go…
It depends on the seller’s particular situation. For example, if you sold your home in the Colony for $1 million, you’d be looking at $150,000 being withheld. Most people wouldn’t want to lose access to that amount of money for long and would probably be best off filing the Withholding Certificate. It costs $750 to do so, but the opportunity to get, say, $125,000 of that money reimbursed in two months makes it well worth the price.
Foreign sellers also have to obtain an ITIN number, right?
Yes. ITIN stands for Individual Taxpayer Identification Number. It’s something like a Social Security Number for nonresidents. Whether a foreign seller files a Withholding Certificated or just files taxes, he or she needs an ITIN number.
There are three ways to get an ITIN number, all of which require that your passport is authenticated. You could send the IRS your passport, but it could very well take three months for the IRS to return it.
Another option is to go to the IRS Service Center in Fort Myers. You won’t have to sacrifice access to your passport for three months, but you will have to stand in line, probably for a very long time. You might want to bring along some reading materials—lots of reading materials—to pass the time.
Finally, a Certified Acceptance Agent can authenticate your passport right here in Naples and help you obtain your ITIN.
You’re a Certified Acceptance Agent, aren’t you BJ?
That’s a very good question Jill and I’m glad you asked it LOL. I am indeed one of the very few Certified Acceptance Agents in Southwest Florida.
Anything else that foreign sellers should know about the closing process?
One other factor to consider is that in Collier County buyers choose their title companies. This means that the buyer’s title company will have considerable impact on how quickly a seller can receive reimbursement on the amount of money being withheld following the sale of his or her property. Foreign sellers may want to investigate the reputation of the buyer’s title company and suggest an alternative if there are any red flags.
Thanks BJ. Foreign sellers can learn much more about FIRPTA and making the sales process as smooth as possible by attending our upcoming seminar. You’ll have the opportunity to ask questions and get information about your particular situation. BJ and I look forward to seeing you there.