Gilbert, AZ · Member since 2017 · 119 posts · 101 votes
I'm looking at a small condo to buy as an investment, and I noticed in the seller notes that the property may be subject to firpta... is this a deal killer? I've never heard of firpta until now and in doing my research, it looks like it's a bunch of risk on the buyer side?
Can someone please eli5 about firpta and whether I should back away slowly from property.
Everything else looks good and the cash flow is definitely decent... assuming this won't cause a whole host of legal/tax problems.
What should I look for and what questions should I be asking?
@Paul G. That probably means that a foreigner was invested in the property, maybe a Canadian or a Mexican or Aussie etc. The Feds keep an interest (lien) on the property until all applicable taxes have been paid on the investment. Just ask the agent the estimated amount. If it will be paid at closing by the owner or if you can live with the amount, and it is a good deal, that works for me. If they can't tell you the estimated amount or the "risk", I'd walk, and pour my time into something that has better potential.
FIRPTA is a tax on a foreign seller of US owned real estate for which you as a domestic buyer MAY have a withholding obligation. In other words you may need to remit a portion of the sales price you paid (e.g., 15 percent) to the IRS to help ensure the foreign seller fulfills his obligation to pay US tax on his gain.
These can be complicated rules and various exceptions apply so you should seek someone experienced with theses provisions to assist you in filing the necessary forms should they be required. If the foreign seller fails to pay the tax and you fail to withhold you could become liable for an element of the foreign sellers tax.
More attempts by the government to make citizens unpaid IRS agents. It's disgusting.
I think title company can make sure you're in the clear though. Making sure someone else pays taxes isn't your job. And title insurance should protect you from big brother
@Paul G. You can use a title company or Attorney who will assist you as the withholding agent on the withholding. FIRPTA is a requirement as mentioned above that on Foreign sellers of U.S. owned real estate.
Thanks for all the responses! I will definitely do my due diligence (as one should do for every property), but I'll be extra careful when wording my offer on this property.
At least it will give my agent something not so cookie cutter to look into :).
Paul, just make sure that all of that is cleared in escrow by closing. Seek guidance of the title company who handles the closing, you are paying for that. And if that is cleared you should be in good shape.