Taxes

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires buyers in certain transactions involving foreign sellers to withhold up to 15% of the amount realized by the foreign seller for federal taxes. The amount realized is usually the sales price. Particularly:

• If a property’s sales price is $300,000 or less and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, nothing needs to be withheld and no reporting is required.
• If the property's sales price is between $300,001 and $1,000,000 and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, 10% of the sales price must generally be withheld and reporting is required.
• If neither situation applies, 15% must generally be withheld and reporting is required.

The buyer must use IRS Form 8288 and IRS Form 8288-A to report and pay the tax.

Possibly. If an agent knows that a certification is false and fails to notify the buyer of this knowledge, that agent will be responsible for paying the tax to the IRS. This payment is limited to the amount of commission that the agent earned in the transaction.

The seller may request an adjustment of the amount withheld from the IRS by filing a withholding certificate application (IRS Form 8288-B). The buyer or buyer’s agent can also request this adjustment.

The IRS will generally act on the request within 90 days of receipt of an application. A seller who applies for an adjusted withholding must notify the buyer in writing that the certificate has been applied for no later than the closing date. Since the seller’s agent may not make the request on behalf of the seller, the seller’s agent should discuss the withholding certificate with the seller as an option during the negotiation process.

The IRS allows a seller to exclude from his taxable income a gain of up to $250,000 on the sale of his home (or $500,000 if he is married filing jointly) if he:

1. owned the home and used it as his principal residence during at least two of the last five years before the sale
2. didn’t acquire the home through a 1031 exchange during the past five years
3. didn’t exclude a gain on another home sold during the two years before the current sale.

At age 65, a homeowner receives an additional $10,000 homestead exemption and a tax freeze on the amount of school taxes they pay for as long as they own the home (provided improvements are limited to normal repairs and maintenance). Should the senior citizen purchase a new homestead in Texas, he may apply to proportionally transfer the school-tax-freeze benefit to his new home. This transfer is referred to as tax-freeze portability and is designed to keep senior citizens from experiencing huge increases in school taxes upon moving.

The tax freeze for school taxes on a new homestead following such transfer is determined by calculating the percentage of school taxes that are frozen on the current homestead and applying that percentage to the school taxes of the new home. For instance, if the homeowner pays $100 in school taxes for the current homestead, but would have to pay $400 without the tax freeze, the percentage of school taxes paid is 25%. If the school taxes on the new home would normally be $800 in the first year, tax-freeze portability results in school taxes of $200 (or 25% of $800) on that home.