I am listing a property for a seller who is not a US taxpayer; what should I do to prepare the seller for closing?
As a general rule, the sale of U.S. real property by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. Recent federal tax legislation increased the FIRPTA withholding rate from 10% to 15%.
Below are the guidelines regarding the amount of withholding and when / if withholding may be avoided all together:
- If the sales price is $300,000 or less and the property will be used by the buyer as a residence (as provided for in the current regulations), no sums need be withheld or remitted.
- If the amount realized exceeds $300,000 but does not exceed $1,000,000 and the property will be used by the buyer as a residence then the withholding rate is 10% on the sale price.
- If the amount realized exceeds $1,000,000, then the withholding rate is 15% of the sales price.
The best advice a real estate agent can give to a foreign seller is to obtain the advice of a US CPA and a real estate attorney.
You can prepare the seller by asking them to obtain the following items:
- HUD statements (original purchase and sale)
- Warranty deed
- Sales contract
- Legal description of the property
- Social security number or EIN of buyer
- Foreign address and social security number or EIN of seller(s)
- Withholding agent name and federal tax ID (if different from buyer)