Selling Real Estate? Understand FIRPTA or You Could Lose Money  

Navigating real estate transactions involves numerous legal documents, and among these, the Non-Foreign Affidavit plays a critical yet often misunderstood role. Understanding this document can save you from potential tax complications if you are selling property and help to ensure your closing proceeds smoothly. 

What Is a Non-Foreign Affidavit? 

A Non-Foreign Affidavit, also known as a FIRPTA Affidavit, is a legal document required under the Foreign Investment in Real Property Tax Act (FIRPTA). This U.S. tax law applies specifically when real estate changes hands. It aims to ensure proper tax collection on property sold by foreign individuals or entities. 

The affidavit serves as an official certification that the seller of U.S. property is not a foreign person or entity for tax purposes. U.S. citizens and resident aliens provide this document to exempt their transaction from FIRPTA withholding requirements. 

Why Is This Affidavit Essential in Real Estate Closings? 

Understanding why this document matters can help sellers appreciate its significance: 

• FIRPTA Compliance: Federal law requires buyers to withhold a percentage of the sales price when purchasing property from foreign sellers. The Non-Foreign Affidavit confirms that withholding is not necessary. 

• Buyer Protection: Without this affidavit, buyers could face significant liability. If a buyer fails to withhold the required amount from a foreign seller, the IRS may hold the buyer responsible for the unpaid tax. 

• Transaction Efficiency: Title companies and closing agents typically require this affidavit to proceed with closing. Without it, the transaction may be delayed, or the seller might receive reduced proceeds due to mandatory withholding. 

What Information Does a Non-Foreign Affidavit Contain? 

A properly executed Non-Foreign Affidavit includes several key elements: 

• The seller’s complete name and current address 

• The seller’s Taxpayer Identification Number (TIN) or Social Security Number (SSN) 

• A clear statement certifying that the seller is not a foreign person under FIRPTA regulations 

• The seller’s signature, properly notarized to authenticate the document 

This information verifies the seller’s tax status and provides necessary documentation for IRS compliance. 

What Happens When the Seller Is a Foreign Person? 

When selling property, foreign individuals or entities trigger different requirements: 

• The buyer must withhold 15% of the gross sales price 

• This withheld amount must be submitted to the IRS along with Forms 8288 and 8288-A 

• The withholding serves as an advance payment toward the seller’s potential U.S. tax liability 

Foreign sellers may qualify for reduced withholding in certain circumstances by filing for a withholding certificate with the IRS before closing. 

Common Questions About Non-Foreign Affidavits 

• Is this required for all real estate transactions? Yes, for sales of U.S. real property with a purchase price over $300,000. 

• Can the affidavit be waived? No, it’s a federal requirement that cannot be waived for qualifying transactions. 

• What if the seller is a business entity? The entity must provide documentation of its non-foreign status, typically through a special affidavit signed by an authorized representative. 

• When exactly is this document signed? The Non-Foreign Affidavit is typically executed at closing along with other final transaction documents. 

Protecting Your Real Estate Transaction 

For sellers, providing a properly executed Non-Foreign Affidavit ensures you receive your full proceeds without delay or withholding. 

Having a knowledgeable real estate attorney guide you through these requirements can prevent costly mistakes and ensure compliance with all applicable tax laws. 

Ensuring Smooth Real Estate Closings 

A Non-Foreign Affidavit is more than just another piece of paperwork—it’s a critical document that protects sellers in a real estate transaction while ensuring compliance with federal tax laws. Understanding its purpose and requirements helps all participants navigate the closing process more confidently. 

Ready to ensure your Connecticut real estate transaction has the proper legal protection it needs? I’m here to help you navigate the complexities of real estate law with clarity and confidence. As your trusted legal partner, I’ll provide the personalized guidance you need to make informed decisions throughout the selling process. 

Let’s work together to protect your investment and ensure a smooth transaction. Contact me today for a consultation at 860-928-2429 or visit KateCerroneLaw.com to get started.   

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