A foreign investor (non-U.S. person) sells a California rental property for $800,000. The property carries a mortgage balance of $600,000. The escrow officer calculates that the combined federal FIRPTA withholding (15%) and California state withholding (3.33%) total approximately $146,400, which exceeds the seller's net equity of $200,000 after paying off the mortgage. What is the most appropriate course of action?
Correct Answer
A) Advise the seller to apply to the IRS for a withholding certificate (Form 8288-B) to request a reduced withholding amount, and delay closing until the certificate is issued or the parties agree on how to proceed
When required FIRPTA and California withholding would exceed the seller's net equity, the proper escrow practice is to advise the foreign seller to file IRS Form 8288-B for a reduced-withholding certificate and delay closing until the IRS issues the certificate or the parties agree on a path forward.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A deed is a written legal document that conveys (transfers) ownership of real property from one party to another. It must be delivered to and accepted by the grantee to be effective.
For a deed to be valid, it must contain several essential elements including a competent grantor, identifiable grantee, consideration, legal description, granting clause, signature of the grantor, and delivery and acceptance.
Escrow is an arrangement in which a neutral third party holds documents, funds, or other items on behalf of the buyer and seller until all conditions of the transaction are met.
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