AZ FIRPTA Glitch

Arizona FIRPTA “glitch” ... Foreign Investment Real Property Tax Act). (1980) (Law change February 17, 2016)

For years, in a class somewhere where “FIRPTA” is mentioned, I often made a joke --- saying, “Often, I awake during the night yelling, “FIRPTA!” (smile). It had been a rare thing for many, many years that now a lot of foreign investors purchased real property in our state. FIRPTA is a more frequent occurrence.

However, in more recent years we have many more foreign investors and their taxes now come into play. The IRS (Internal Revenue Service) is always interested in collecting taxes, including for “Foreign Investors.” Since they do not pay annually, like U.S. Citizens, the IRS established this method of collecting taxes upon the sale of real property from foreign investors. It was established in 1980 and authorized the United States to tax foreign persons on the dispositions of U.S. real property interests.

I am not going to go into the details in this “blog” about the amounts, etc., but we are now involved in a “new detail” of which we just became aware: Namely, when the seller is a “Foreign Person” and the buyer is a U.S. Citizen and will be occupying the property, it is “business as usual.” The same rules for the taxes in a regular sale is the same. However, (as we just learned with this unusual event NOW happening) when a U.S. Buyer is purchasing the home and is intending to use it as a “rental.” (WHOOPS!), we learn from the escrow company that this is NOT ALLOWED without the seller having to hold 15% of the sales price for FIRPTA Taxes. (It is our listing). We won’t know the outcome for some time in this case.

“So, you ask, why are you telling us in this “blog?” (“What does it have to do with the rest of us?”) Well, namely, to let you know that if you LIST a property for a foreign investor seller, do NOT allow the property to be sold to an investor that will be using the home for a “rental” WITHOUT getting a signed “disclosure” from both the seller and the buyer that they understand the 15% tax withholdings requirement. If the purchaser is to be an occupant, the previous rules continue to apply. It is the “rental” usage that is being made known to you in this “blog.”

Dale Hillard is the designated broker for West USA Realty. West USA prides itself in offering the best in broker support to its agent family. Call 602-942-4200 today to learn more about West USA and its broker team.