Top 5 FIRPTA Mistakes People Make and Why Professional Help Matters
Navigating the Foreign Investment in Real Property Tax Act (FIRPTA) can feel overwhelming. Many individuals make costly errors due to a lack of guidance. Understanding common pitfalls is essential, and knowing why professional help matters can save you time, money, and stress. Here are the five most common FIRPTA mistakes and how to avoid them.
1. Assuming FIRPTA Applies to Every Sale
One of the most frequent mistakes is assuming FIRPTA doesn’t apply if the seller is a U.S. person. Until a seller certifies they are not a foreign person, or a valid exception applies, FIRPTA rules must be followed. Erring on the side of caution ensures proper withholding and compliance.
2. Not Using an Experienced Tax Professional
FIRPTA is a specialized area of tax law. Just as you wouldn’t see a brain surgeon for heart surgery, handling FIRPTA without an expert can lead to serious mistakes. Hiring a professional helps you understand your obligations and avoid penalties, reinforcing why professional help matters.
3. Misunderstanding Each Party’s Role
FIRPTA withholding is the buyer’s responsibility, even though the tax applies to the foreign seller. Assuming someone else is managing the requirements is a common mistake. Knowing your role ensures deadlines are met and expectations are clear.
4. Overlooking FIRPTA Exceptions
The law requires buyers to withhold up to 15% of the sales price, but exceptions exist that may reduce or eliminate withholding. Misunderstanding these exceptions can affect the success of a transaction. Consulting a professional ensures that exceptions are properly applied.
5. Ignoring Deadlines
FIRPTA deadlines are strict. Buyers must submit withheld taxes within 20 days of closing, while sellers have limited windows to claim refunds. Missing deadlines can result in fines and delays. Knowing the timelines is essential for a smooth process.
By avoiding these five common mistakes—incorrect assumptions, skipping a professional, misunderstanding roles, overlooking exceptions, and missing deadlines—you can navigate FIRPTA confidently. Engaging an expert highlights why professional help matters, ensuring your real estate transactions are compliant and hassle-free.