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It's no secret that, in our modern global economy, the rise and fall of various economies has brought with it an entirely new component to the real estate market. This is especially true in the United States. As the national economy fell into flux, the housing market quickly followed suit. The result? A perfect opportunity storm for buyers everywhere to purchase homes and properties at significantly reduced price points. FIRPTA Regulations Critical During Market Recovery Lately, signs of market recovery have been noted throughout the country, followed by key indicators showing that home prices are steadily on the rise. In the recent economic uptick, many foreign investors who bought properties in the U.S. at lower prices are currently attempting to get them as marketable as possible to sell them for a profit. Are you one of them? Or, perhaps you're a citizen of the United States who is currently in the process of purchasing realty from a foreign national seller. If so, your transaction may be subject to the Foreign Investment In Real Property Tax Act (FIRPTA). Understanding What Is FIRPTA And How It Affects Your Investment Profit Understanding what is FIRPTA and how it may affect the sale or profit you make on your property can play a critical role in your decision to move forward with the transaction. The Foreign Investment In Real Property Tax Act was enacted in 1980 specifically to withhold estimated taxes during the transaction of real property from foreign investors. While many buyers and sellers assume that FIRPTA is only specific to residential lots, it's important to note that the definition of "real property" can also include shares of corporate entities purchased from owners who do not hold U.S. citizenship. Based on these guidelines, the general rule of thumb regarding FIRPTA states that the person or persons buying the real property are required to set aside 10% of the total amount of the purchase price to satisfy the tax act mandates. Because responsibility for withholding the tax amount falls onto the purchaser, it's critical for buyers to understand the citizenship of the property holder before moving forward with the sale. Once it has been determined that a transaction is part of the FIRPTA guidelines, the buyer has to fill out two IRS forms (8288 and 8288-A) with all required information. Once the 8288 and 8288-A forms are completed, they can be filed with the IRS along with the payment from the withheld funds. Sound confusing? It can be - as with any tax act, there are some exceptions to the FIRPTA rules. However, understanding the specifics of the FIRPTA exemptions can quickly prove challenging and overwhelming. The best way to ensure that your transaction goes as smoothly as possible is to partner with a professional firm that specializes in various closing procedures to counsel you throughout the process. No matter which side of the property transaction you fall on, enlisting the help of a third party firm will help delegate the potentially lengthy process needed to guarantee that you are following all the specific rules outlined in the FIRPTA. Need to know what is FIRPTA for your pending property sale? Title Junction can help. As an industry leading specialist in various closing procedures, Title Junction can get you the answers you need for a successful closing. Visit the site today to learn more about their services and title insurance rates!
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