Escrow & Title
What is the purpose of a 'FIRPTA withholding' in a real estate closing?
ATo withhold the agent's commission for tax purposes
BTo withhold a portion of the sale proceeds when the seller is a foreign person, ensuring IRS collection of any capital gains tax owed✓ Correct
CTo withhold closing costs pending final lender approval
DTo withhold HOA dues from the seller's proceeds
Explanation
FIRPTA (Foreign Investment in Real Property Tax Act) requires buyers to withhold a percentage of the purchase price (typically 15%) from the proceeds of foreign sellers and remit it to the IRS. This ensures the IRS can collect taxes on any capital gains earned by non-U.S. persons.
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