Firpta - The Buyers Responsible For Withholding Or Paying This Tax

[Meandering]

1984

Sorry Charley ... how about 3 try for a quarter

Why is this paragraph from the Federal Register link not it, then?

Before the enactment of the Protecting Americans from Tax Hikes Act of 2015, Public Law 114-113 (the PATH Act), the withholding rate under sections 1445(a), 1445(e)(3), 1445(e)(4), and 1445(e)(5) was 10 percent of either the amount realized or the fair market value of the interest, as applicable. Section 324(a) of the PATH Act increased the withholding rate under these sections from 10 percent to 15 percent. This new rate applies to dispositions after February 16, 2016. Section 324(b) of the PATH Act, however, retained the 10-percent withholding rate in the case of a disposition of property that is acquired by the transferee for his or her use as a residence with respect to which the amount realized is greater than $300,000 but does not exceed $1 million.

And then this, from here:
https://www.irs.gov/individuals/international-taxpayers/firpta-withholding

Rates of Withholding
The transferee must deduct and withhold a tax on the total amount realized by the foreign person on the disposition. The rate of withholding generally is 15% (10% for dispositions before February 17, 2016).

The amount realized is the sum of:

• The cash paid, or to be paid (principal only);
• The fair market value of other property transferred, or to be transferred; and
• The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.

If the property transferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transferors based on the capital contribution of each transferor.

A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.

A domestic corporation must withhold tax on the fair market value of the property distributed to a foreign shareholder if:

• The shareholder's interest in the corporation is a U.S. real property interest, and
• The property distributed is either in redemption of stock or in liquidation of the corporation.

For distributions before February 17, 2016, the corporation generally must withhold 10% of the amount realized by a foreign person. For distributions after February 16, 2016, the rate increases to 15%.
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[Howard Klahr]

Why is this paragraph from the Federal Register link not it, then?

Congress amended 26 USC § 1445 in 1984, placing the duty on the buyer to collect the tax by withholding funds from the sale. The Foreign Investment in Real Property Transfer Act (FIRPTA) requires any buyer of a U.S. real property interest to withhold ten percent of the amount realized by a foreign seller. 26 USC § 1445(a).

All of your references address the recent change in the withholding rate from 10% to 15%. The recent change has absolutely nothing to do with the establishment of the withholding requirement by the buyer as that was in place sine 1984.

I can appreciate that it may be news to you, but there is an entire world out there beyond the limits of the Poconos.

 

[Meandering]

Thanks Howard.

I question it because of the state NAR working on changing the agreement of sale for better notification to buyers and sellers. And while the Poconos might lack a significant amount of foreign investors to warrant typical concern by me, this is for the state, so also impacts Philly and Pburgh.

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[Howard Klahr]

working on changing the agreement of sale for better notification to buyers and sellers.

I get it and the same is occurring to promulgated form contracts around the country.

It is issues like this as well as many other nuances associated with real estate transaction that I wholeheartedly recommend that appraisers attend Realtor education courses to gain an understanding of what actually occurs during the transaction. This information better enables appraisers to understand when, if and why adjustment may or may not apply and all of the issues associated with these circumstances. Oh and by the way, they might actually meet someone that could provide non-lender work as well.

 

[Meandering]

Why isn't this handled by the title company at closing?

Don't get me started on indemnity agreements with title companies.

The bottom line there, was that the law says the buyer is responsible, not the title company, so if the title company screws up, guess who is holding the bag.

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[Meandering]

I get it and the same is occurring to promulgated form contracts around the country.

It is issues like this as well as many other nuances associated with real estate transaction that I wholeheartedly recommend that appraisers attend Realtor education courses to gain an understanding of what actually occurs during the transaction. This information better enables appraisers to understand when, if and why adjustment may or may not apply and all of the issues associated with these circumstances. Oh and by the way, they might actually meet someone that could provide non-lender work as well.

Thanks Howard,

I too thought this was important. It's only in effect one year, and if appraisers did not know about it, they may not have even considered it.


Thanks again for helping me hash this out.


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[Amy Perkins]

Escrow should be responsible for this item.

 

[Howard Klahr]

Escrow should be responsible for this item.

and if frogs had wings they wouldn't bump their butts