Open Forum

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Hi Mary,

I truly admire your dedication to educating the real estate community, especially on topics as complex as FIRPTA. Your insights have been invaluable to many, and I applaud your efforts in providing solid guidance.

In the spirit of professional dialogue, I would like to contribute to the discussion. I agree with the majority of your post, as it aligns closely with published regulations. However, I respectfully hold a differing perspective regarding the requirement that the property must be the buyer's primary residence under FIRPTA, as mentioned in your post.

Specifically, the tax code stipulates that the buyer's use can also be satisfied if an immediate family member resides at the property. For instance, if I were to purchase a condo for $250,000 from a foreign seller with the intention of allowing my daughter to use it, this scenario would qualify as an exception under FIRPTA. Despite the property not being my primary residence, it meets the criteria for personal use as per my understanding of the regulations.

Consider another scenario where I purchase the same property intending to use it as a second home. Over the first 12 months after purchase, the property is occupied for 200 days by me or my immediate family and remains vacant for the rest of the year. Since FIRPTA regulations do not require consideration of the vacant days, only the occupied days matter. In this case, I am using the property for 100% of the occupied days, which is well above the 50% requirement. Do you agree a second home, used this way, also satisfies the personal use exception? 

In summary, while I agree that a property being the buyer's primary home can satisfy the exception under FIRPTA, I believe it is not a prerequisite for utilizing this exception. I don't mean to split hairs, but understanding the distinction expands the range of potential buyers who are otherwise ineligible for the exception. 

If there is any applicable code or case law supporting the requirement that it must be the buyer's primary home, I would appreciate it if you could share. I am always eager to broaden my knowledge and understanding, as it is crucial for my profession. I'm looking forward to hearing your thoughts! Our industry thrives on healthy debates like these.

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Hi Julie;

Not only I welcome feedback and comments, I appreciate them, thank you, this post in particular wasn't so much to discuss the "2 year rule of occupancy"  on the buyer's side but rather the INTENT, which is the question we where asked, I always think that if 1 member has a particular question is probably worth putting information so more title professionals get the answers. 

However, yes if the buyer or a family member will occupy the property for at least 50% of the next 2 years and the buyer is willing to sign a well document stating the intention to occupy, the seller can benefit itself from either reduce the FIRPTA withholding from 15% to 10% or eliminate FIRPTA altogether depending on the sales price.  

Thank you Julie 

Hi Mary,

I truly admire your dedication to educating the real estate community, especially on topics as complex as FIRPTA. Your insights have been invaluable to many, and I applaud your efforts in providing solid guidance.

In the spirit of professional dialogue, I would like to contribute to the discussion. I agree with the majority of your post, as it aligns closely with published regulations. However, I respectfully hold a differing perspective regarding the requirement that the property must be the buyer's primary residence under FIRPTA, as mentioned in your post.

Specifically, the tax code stipulates that the buyer's use can also be satisfied if an immediate family member resides at the property. For instance, if I were to purchase a condo for $250,000 from a foreign seller with the intention of allowing my daughter to use it, this scenario would qualify as an exception under FIRPTA. Despite the property not being my primary residence, it meets the criteria for personal use as per my understanding of the regulations.

Consider another scenario where I purchase the same property intending to use it as a second home. Over the first 12 months after purchase, the property is occupied for 200 days by me or my immediate family and remains vacant for the rest of the year. Since FIRPTA regulations do not require consideration of the vacant days, only the occupied days matter. In this case, I am using the property for 100% of the occupied days, which is well above the 50% requirement. Do you agree a second home, used this way, also satisfies the personal use exception? 

In summary, while I agree that a property being the buyer's primary home can satisfy the exception under FIRPTA, I believe it is not a prerequisite for utilizing this exception. I don't mean to split hairs, but understanding the distinction expands the range of potential buyers who are otherwise ineligible for the exception. 

If there is any applicable code or case law supporting the requirement that it must be the buyer's primary home, I would appreciate it if you could share. I am always eager to broaden my knowledge and understanding, as it is crucial for my profession. I'm looking forward to hearing your thoughts! Our industry thrives on healthy debates like these.

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊

Hi Julie;

Not only I welcome feedback and comments, I appreciate them, thank you, this post in particular wasn't so much to discuss the "2 year rule of occupancy"  on the buyer's side but rather the INTENT, which is the question we where asked, I always think that if 1 member has a particular question is probably worth putting information so more title professionals get the answers. 

However, yes if the buyer or a family member will occupy the property for at least 50% of the next 2 years and the buyer is willing to sign a well document stating the intention to occupy, the seller can benefit itself from either reduce the FIRPTA withholding from 15% to 10% or eliminate FIRPTA altogether depending on the sales price.  

Thank you Julie 

Hi Mary,

I truly admire your dedication to educating the real estate community, especially on topics as complex as FIRPTA. Your insights have been invaluable to many, and I applaud your efforts in providing solid guidance.

In the spirit of professional dialogue, I would like to contribute to the discussion. I agree with the majority of your post, as it aligns closely with published regulations. However, I respectfully hold a differing perspective regarding the requirement that the property must be the buyer's primary residence under FIRPTA, as mentioned in your post.

Specifically, the tax code stipulates that the buyer's use can also be satisfied if an immediate family member resides at the property. For instance, if I were to purchase a condo for $250,000 from a foreign seller with the intention of allowing my daughter to use it, this scenario would qualify as an exception under FIRPTA. Despite the property not being my primary residence, it meets the criteria for personal use as per my understanding of the regulations.

Consider another scenario where I purchase the same property intending to use it as a second home. Over the first 12 months after purchase, the property is occupied for 200 days by me or my immediate family and remains vacant for the rest of the year. Since FIRPTA regulations do not require consideration of the vacant days, only the occupied days matter. In this case, I am using the property for 100% of the occupied days, which is well above the 50% requirement. Do you agree a second home, used this way, also satisfies the personal use exception? 

In summary, while I agree that a property being the buyer's primary home can satisfy the exception under FIRPTA, I believe it is not a prerequisite for utilizing this exception. I don't mean to split hairs, but understanding the distinction expands the range of potential buyers who are otherwise ineligible for the exception. 

If there is any applicable code or case law supporting the requirement that it must be the buyer's primary home, I would appreciate it if you could share. I am always eager to broaden my knowledge and understanding, as it is crucial for my profession. I'm looking forward to hearing your thoughts! Our industry thrives on healthy debates like these.

Good day to you;

I want to share with you a question and answer from a very dear ALTA member who attended a FIRPTA class taught online a few days back.

He asked

2 year rule - Is it not based on the purchaser's intent at the time of settlement?. If the purchaser has some adverse action that prohibits the retention and/or occupancy (job change/transfer), would that subject the purchaser to the withholding, etc.?

The answer he was given by the person teaching the FIRPTA class was.

Yes.  If the buyer cannot meet the residency requirements they may be liable to the IRS for up to the 15% of the purchase price of the property, plus interest and penalties

The instructor who stated that failure to occupy for two years without regard to intent automatically triggers the FIRPTA liability on the Buyer has an incorrect interpretation of the regulation.

For ease of reference, we have structured our analysis by working backward from the conclusion to the underlying regulation. While no court cases directly address this issue, the Treasury Regulation is the authoritative source. In practice, we have never encountered a situation where the IRS went after a buyer for not fulfilling the two-year occupancy requirement due to extenuating circumstances.

The question relates to the underlying regulatory authority considered in the question: "Is the purchaser's intent [to occupy the residence] at the time of settlement [the relevant criteria to avoid FIRPTA and penalties]?"

The short answer is Yes; the Buyer's intent at the time of purchase is the only criterion.  Proving a Buyer's state of mind and intent is difficult; therefore, the Buyer's intent to occupy is memorialized in an affidavit.  If the IRS determines the affidavit was false, then the Buyer may be held liable for the FIRPTA withholding plus penalties and interest.

In U.S. tax law, the following hierarchy generally applies:

1. Internal Revenue Code (IRC): Enacted by Congress, this is the primary source of tax law.
2. Treasury Regulations: Issued by the Treasury Department, these provide official interpretations of the IRC.
3. Legal Decisions (Case Law): Court rulings that interpret and apply tax laws to specific cases.
4. IRS Publications: Informational resources from the IRS offering practical guidance.

Note; specific facts of each case can influence how these sources are applied.

As always, if you have any FIRPTA related questions feel free to give us a call, we are happy to explain FIRPTA to you and if you want to gather your escrow agents for a free FIRPTA class, by all means reach out so we can put you in our calendar!! 😊