This is not legal advice. For legal advice, consult an attorney in person about your specific situation. Never rely on a blog.
The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires a “foreign person” to pay tax on the gain realized upon the sale of real property owned by that person. However, the law does not charge the seller with insuring compliance. Rather, the law requires the buyer to determine whether or not the seller is a “foreign person” (basically a non-resident alien). If the seller is a “foreign person” as defined by the statute,then the buyer must withhold 10% of the sale proceeds at closing. These funds are to be forwarded to the IRS to insure that the foreign person pays tax on the gain realized from the transfer. If the buyer fails to determine that the seller is a foreign person and thus fails to withhold 10% of the proceeds, the buyer is liable for the 10%. WOW! That’s significant.
The NWMLS, recognizing the risk to buyers, has included a “FIRPTA” provision in the standard Purchase and Sale Agreement:
j. FIRPTA – Tax Withholding at Closing. The Closing Agent is instructed to prepare a certification (NWMLS Form 22E or equivalent) that Seller is not a “foreign person