Today’s “Ask the Expert” column features Cindy Fauth, Global Marketing Manager with the National Association of REALTORS®.
Q: What do U.S. agents need to know about the FIRPTA rate increase? And what is the EB-5 visa?
A: If an international client comes calling, it’s important for U.S.-based real estate agents to understand the differences between a transaction in the client’s home country and one in the United States. Not all countries require title insurance, for example. Many don’t have buyer’s agency. Some have large financial implications, such as the United States’ required federal withholding tax, called the Foreign Investment in Real Property Tax Act (FIRPTA).
What is FIRPTA?
When selling a U.S. property, foreign investors are required to withhold 10 percent of the purchase price and remit it to the Internal Revenue Service (IRS) at the time of closing, unless certain exceptions are met. With the new increase, the rate jumps to 15 percent for properties over US$1 million only.
Why is it important to you?
Though the buyer is legally responsible for remitting the funds to the IRS, in certain circumstances, the buyer’s agent can be held responsible.
Why the increase?
The recently enacted Protecting American Taxpayers from Tax Hikes (PATH) Act (H.R. 2029, P.L. 114-113) includes two very positive FIRPTA provisions that are conservatively estimated to boost foreign investment in U.S. commercial real estate by $20 – $30 billion per year. However, as part of a package of tax changes to “pay for” the two provisions, Congress also included the FIRPTA increase.
EB-5 Visa Program
In other government news related to international real estate, the House and Senate leadership have recommended that the EB-5 visa program be extended (without changes) until September 30, 2016. Under this program, immigrant investors can gain lawful permanent residence for themselves and their immediate family by requiring that the immigrant make a capital investment of either $500,000 or $1,000,000 in a new commercial enterprise located within the United States. The new commercial enterprise must create or preserve 10 full-time jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor’s admission to the United States as a Conditional Permanent Resident (CPR).
You’ll want to have experienced tax and immigration attorneys on hand for your client to help guide them through the legal requirements during the purchasing process. But, it’s important that you have a solid understanding of FIRPTA and EB-5 as well. NAR’s Government Affairs division has compiled a comprehensive and easy-to-understand Issue Brief on FIRPTA and the recent withholding rate increase. The Issue Brief can be found here.
To learn more about what to expect when working with foreign buyers, the Certified International Property Specialist (CIPS) courses can help. The education offers five full days of study focusing on the critical aspects of international real estate transactions, including globalization of economies, international capital flow, marketing and business planning strategies, roles and expectations in international transactions, and the unique business and cultural practices of countries around the world.
For more information, visit www.realtor.org/global.
