407-344-1012 
January 14, 2025 
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Are you wondering who’s responsible for FIRPTA tax withholding—the buyer or the seller? 🤔 In this video, we break down the Foreign Investment in Real Property Tax Act (FIRPTA) and clarify who holds the obligation to withhold taxes when a foreign individual sells U.S. real estate. Whether you’re a buyer, seller, or real estate professional, this is a must-watch for anyone involved in international property transactions!
Key Takeaways:
- What is FIRPTA tax withholding?
- The buyer’s role and responsibilities.
- The seller’s obligations under FIRPTA.
- Tips to avoid surprises in your real estate deals.
Who should watch?
- Buyers purchasing property from foreign sellers.
- Sellers who are non-U.S. residents.
- Realtors, attorneys, and accountants assisting clients in these transactions.
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This video is intended for education purposes and should not be taken as legal, financial or tax advice. You should consult with a professional about your unique situation before acting on anything discussed in these videos. Freedom Tax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. are providing educational content to help small business owners and individuals become more aware of certain issues and topics, but it cannot give blanket advice to a broad audience. Things are always changing, therefore, this channel may not contain the most up-to-date information. Neither Freedom Tax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. nor its members can be held liable for any use or misuse of this content.
TRANSCRIPTION
Hello again, friends. Are you buying or selling property in the U.S. as a foreign national? If so, you might have heard about FERPTA, the Foreign Investment in Real Property Tax Act. But here’s an important question.
Who’s actually responsible for FERPTA withholding? Is it the buyer, the seller, the real estate agent, the title company? Stick around, and by the end of this video, you’ll know exactly who’s responsible and how to avoid causing the mistake. Let’s go. Okay, let’s start with the basics.
What is FERPTA? FERPTA is a federal law requiring buyers of U.S. real estate from foreign sellers to withhold up to 15% of the property sales price and send it to the IRS. Why does this rule exist? To ensure that foreign sellers pay the necessary taxes on their U.S. property sales. Sounds straightforward, right? But the responsibility for withholding isn’t always clear.
Let’s talk about it. Here’s the deal. Under FERPTA, the buyer is responsible for withholding the required amount, ensuring it’s sent to the IRS.
Yes, you heard that right. It’s on the buyer, not the seller, to make sure this happens. If the buyer doesn’t withhold the proper amount, they could be held liable for the full amount owed, plus penalties and interest.
You’re probably asking yourself, why the buyer? Isn’t the seller the one who’s subject to the withholding? Yes, but the IRS sees the buyer as the party in control of the transaction. They’re the ones paying the seller and can ensure the funds are set aside. But don’t worry, there are processes and professionals like us to help.
So what about the seller? The seller’s main role is to provide the necessary documentation to determine whether withholding is required. For example, a seller can apply for a withholding certificate from the IRS if they believe the amount withheld should be reduced or eliminated based on their tax liability. Escrow agents, real estate attorneys, and title companies often step in to facilitate the withholding and payment process.
They’ll calculate the amount, ensure the funds are withheld at closing, and submit them to the IRS. However, this doesn’t shift legal responsibility from the buyer. These professionals are there to assist, but can’t take on the buyer’s responsibility.
Are there situations where withholding isn’t required? Yes. Here are a few key exceptions. One, when the sales price is $300,000 or less, if the buyer plans to use the property as their primary residence for at least half of the year, withholding may not apply.
Two, the seller provides a withholding certificate. This certificate from the IRS can reduce or eliminate the withholding requirement. And three, if the seller is a U.S. taxpayer.
If the seller provides proof of being a U.S. resident or citizen, FERPTA doesn’t apply. Understanding these exceptions can save both buyers and sellers a lot of money and stress. If you’re a buyer, here’s what you need to do to stay compliant with FERPTA.
Verify the seller’s status. Ask for proof of whether the seller is a foreign person. This is usually a W-9 or W-8 BN form.
Work with professionals. Hire a CPA, enrolled agent, or tax advisor who has experience with FERPTA to guide you through the process and submit the proper form. Use IRS forms 80288 and 80288A to report and remit the withholding within 20 days of the transaction closing.
So to sum it up, under FERPTA, the buyer is primarily responsible for withholding and submitting the funds to the IRS. Sellers and professionals can assist, but the bug stops with the buyer. Don’t let this overwhelm you.
With the right team and preparation, it’s manageable. Got questions about FERPTA or other real estate topics? Drop them in the comments below and don’t forget to like, subscribe, and hit the notification bell for more expert tips. See you in the next video. End of Transcript
SUMMARIZATION
The responsibility for the FIRPTA tax withholding often causes confusion for both buyers and sellers. However, the answer is clear: the buyer is responsible for the FIRPTA tax withholding. This federal law, the Foreign Investment in Real Property Tax Act (FIRPTA), ensures that foreign sellers pay the appropriate taxes when selling U.S. real estate.
The FIRPTA withholding rate increased from 10% to 15% in 2016 for most transactions, making compliance even more critical for buyers.
What Is FIRPTA and Why Does It Exist?
FIRPTA requires buyers purchasing property from foreign nationals to withhold up to 15% of the property’s sales price and send it directly to the IRS. The purpose of this law is to ensure that taxes on the sale are properly collected. While the seller is the one subject to the tax, the buyer is held accountable for ensuring compliance. If the buyer fails to withhold and remit the appropriate amount, they could face penalties, interest, and liability for the entire tax amount.
Why Is the Buyer Responsible?
The IRS places the responsibility on the buyer because they control the transaction’s flow of funds. By requiring the buyer to set aside and remit the withholding amount, the IRS ensures compliance before the seller receives the proceeds. The buyer must handle this responsibility carefully, as legal liability cannot be transferred to other parties.
The Seller’s Role in FIRPTA Compliance
Sellers play a supporting role in the FIRPTA process by providing necessary documentation to determine withholding requirements. For instance, sellers can apply for a withholding certificate from the IRS if they believe the withholding amount should be reduced or eliminated based on their actual tax liability. Additionally, sellers may provide proof of U.S. residency or citizenship to exempt themselves from FIRPTA withholding altogether.
Exceptions to FIRPTA Withholding
There are specific scenarios where FIRPTA withholding is not required:
- Primary Residence Exception: If the property’s sales price is $300,000 or less and the buyer plans to use it as their primary residence for at least half of the year, withholding may not apply.
- Withholding Certificate: Sellers can request this certificate from the IRS to adjust or eliminate the withholding amount.
- U.S. Residency: If the seller is a U.S. citizen or resident and provides documentation like a W-9 form, FIRPTA does not apply.
The Role of Professionals
While escrow agents, real estate attorneys, and title companies can assist in facilitating FIRPTA compliance, they cannot assume the buyer’s legal responsibility. These professionals help calculate the withholding amount, ensure it is withheld at closing, and submit it to the IRS. Buyers should also work with qualified tax professionals, such as CPAs or enrolled agents, experienced in FIRPTA to ensure proper filing and remittance.
Steps for Buyers to Stay Compliant
- Verify the Seller’s Status: Obtain proof of the seller’s residency or foreign status, typically through forms like W-9 or W-8 BEN.
- Work With Experts: Engage a CPA or tax advisor to navigate FIRPTA requirements and submit forms 8288 and 8288-A to the IRS.
- Meet Deadlines: File the required forms and remit the withholding amount within 20 days of the transaction closing.
Final Thoughts
Under FIRPTA, the buyer bears the primary responsibility for withholding and submitting funds to the IRS. While the seller and professionals can offer support, the obligation ultimately falls on the buyer. By understanding the requirements and working with the right team, compliance with FIRPTA can be managed effectively.
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About Freedom Tax Accounting
At Freedom Tax Accounting, our story is one of resilience, faith, and a deep commitment to serving others. Founded in 2008 during an economic downturn, Freedom Tax was born out of a mission to honor God with the talents and skills we’ve been given. Our founders, Julian and Irma Vasquez, began by going door-to-door, offering professional accounting and tax services with a focus on genuine care and excellence. Through God’s grace, we’ve grown from humble beginnings to a thriving full-service firm, now representing individuals and businesses in all 50 states.
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