What Is a Nonforeign Person Affidavit?
Anyone buying American real estate from a foreigner has to withhold 10 percent of the sale price to cover the taxes on such a sale. A Nonforeign Person Affidavit, stating that the seller is not legally a foreigner, provides an exemption.
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FIRPTA
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The relevant law is the Foreign Investment of Real Property Tax Act (FIRPTA). It requires buyers to withhold the 10 percent and holds them liable if the tax isn't paid.
Foreign Persons
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For the purposes of FIRPTA, foreigners include nonresident aliens, foreign corporations that are not treated as domestic corporations under the law and foreign partnerships, trusts or estates.
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The Affidavit
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The affidavit states that the seller is not a foreign person as defined by FIRTPA. Signed by the seller or his representative, it frees the buyer from his obligation to withhold the tax.
What It Does
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If the buyer believes the affidavit is true, it protects her if the seller lied and fails to pay the tax. If the buyer didn't obtain the affidavit, or knew it was false, the IRS can demand she cover the tax payment.
Other Exemptions
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Buyers can obtain an exemption without an affidavit under other FIRPTA rules, for example, if he plans to make the property his primary residence and it costs less than $300,000.
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References
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