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Three Really Bad Times to Discover FIRPTA

 

Three Really Bad Times to Discover FIRPTA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Check out this explainer video

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So there are three really bad times to discover FIRPTA.  I am going to take these in order from best to worst. 

 

Third

 

The third worst time to discover FIRPTA is at the closing table.  This usually happens because either the Realtor, the seller or the buyer did not know about FIRPTA.  It is typically discovered when the seller will not sign the citizen or tax resident declaration.  We call this the deal killer. 

 

Second

 

The second worst time to discover FIRPTA is 21 days after the closing.  Why 21 days after closing?  The withholding agent (Buyer) must send the check within 20 days of the closing date.  On the 21st day, it is a 5% penalty on the withholding amount.  So half-million dollar sale 15% is $75,000.  The penalty is $3,750, and it is going to be $3,750 a month for every month after that.

 

Wow, that is the second-worst one.  What could possibly be worse than that?

 

Worst time

 

Not knowing about it and finding out about it a year and a half later when the IRS letter shows up in the buyer's mailbox.  Remember, it is the buyer that is responsible for the withholding.  It is the buyer that is subject to the penalties and interest.  Yes, the IRS is going to go after your buyer.  On the same $500,000 sale as above, the penalties before any interest would be $71,250, and the IRS is going to be very un-sympathetic about any penalty abatement

 

The buyer is going to make three phone calls. 

 

First, to the Realtor that brokered the deal, screaming about their incompetence 

 

Second, The title company that failed to catch the mistake.

 

Third to an attorney to file suit against both the Realtor and the Title Company.   

 

Check Out These Other Articles and Resources

 

FIRPTA Withholding Certificate Calculator

Done For You FIRPTA Process

FIRPTA FAQs

FIRPTA Withholding Explained

Is Every Property Under $300,000 Exempt from FIRPTA, NO!

If You Are the Realtor of the Buyer Involved in a FIRPTA Transaction, Is You Job Complete Once the Title Company Says They Have Sent the IRS a Check

Is Your Seller Foreign Under FIRPTA- Maybe Not!

Does the Buyer’s Liability End with the Signing of the FIRPTA Certification of Residential Occupancy- NO!

Does the Buyer’s Liability End with the Buyer’s Certification of Residential Use to Reduce the Seller’s Withholding Rate- NO!

Opportunities for FIRPTA Tax Withholding Reduction, Exemption, and Exclusion for an Individual Seller

Definitions of Terms and Procedures Unique to FIRPTA

Who Is Considered a Foreign Seller under FIRPTA

Can a Foreign Seller Use a Section 1031 Exchange to Avoid FIRPTA Withholding- Yes Under Certain Conditions!

Can the Buyer Rely of the Seller’s Certification That They are not a Foreign Person?

Opportunities for FIRPTA Tax Withholding Reduction, Exemption, and Exclusion for an Entity Seller

 

 

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