Hello Dear ALTA Member:
We have been asked this question a few times in the past month so I thought I share with you,
A foreign seller is generally subject to FIRPTA 15% of the contract sale price withholding.
There is a procedure " deed in lieu of foreclosure" whereby the transfer may be exempt from FIRPTA withholding.
A transfer of a United States real property interest (USRPI) where the transferor transfers the property for zero consideration and the transferee assumes the debt secured by the USRPI can qualify to be treated as a transfer pursuant to a deed in lieu of foreclosure and therefore be exempt from FIRPTA withholding, provided certain conditions are met.
To qualify for exemption from FIRPTA withholding under a deed in lieu of foreclosure, the transfer must involve zero consideration with the transferee assuming the debt secured by the USRPI. The transferee must comply with specific notice requirements and ensure that no substantive withholding liability applies. Additionally, the transaction must not be structured to avoid FIRPTA withholding. If these conditions are met, the transfer can be exempt from FIRPTA withholding.
If the transfer were in foreclosure, and there was a custodian or a court, the same procedure could be used to be more certain on the Zero withholding determination, however buyer is still require to sign the acknowledgement that holds every party and Title harmless from any IRS withholding determination.
As always my advise is to get in touch with a licensed tax professional expert in FIRPTA, every real estate transaction is different hence different approaches may need to be considered.
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Mary Enzi CAA
Tax Solutions – FIRPTA Consulting
[email protected]+1 (281) 578-1040
Katy TX
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