Don’t Forget Significant FIRPTA Changes!

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South Carolina real estate practitioners have the pleasure of dealing with two distinct sets of tax withholding laws, one for income of non-residents of South Carolina to be reported to the S.C. Department of Revenue, and the other for the income of “foreign persons” to be reported to the IRS.

FIRPTA frogThe Federal law, Foreign Investors in Real Property Tax Act (FIRPTA), saw some significant changes effective for closings on or after February 16 of this year following President Obama’s signing into law the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) late last year. New exemptions to FIRPTA codified by the PATH Act may encourage the flow of capital into the United States.

Under the PATH Act, when withholding is required, the amount to be withheld has changed, in most cases, from 10% to 15%.

The following summarizes, in simpler language than the Federal law, the withholding amounts required by FIRPTA as of February 16:

  • If the property will not be used as the buyer’s primary residence, the withholding rate is 15% of the amount realized, and reporting is required.
  • If the property will be used as the buyer’s primary residence and the amount realized is $300,000 or less, no withholding and no reporting are required.
  • house taxIf the property will be used as the buyer’s primary residence and the amount realized exceeds $300,000 but does not exceed $1,000,000, the withholding rate is 10% of the amount realized, and reporting is required.
  • Regardless of the buyer’s use of the property, if the amount realized exceeds $1,000,000, then the withholding rate is 15% of the amount realized, and reporting is required.

Real estate practitioners, sellers, buyers and others with questions concerning FIRPTA compliance should consult tax advisors.

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A Short Time Ago in a Revenue Office Not Far Away …

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Check them out in DOR Information Letter #15-20

The South Carolina Department of Revenue (DOR) issued a Revenue Ruling and an Information Letter in 2015 addressing deed recording fees and the affidavits that must accompany deeds.

Revenue Ruling #15-3, issued earlier this year, contains a comprehensive treatment of the subject, and Information Letter #15-20, issued on December 11, creates new affidavit forms, the Affidavit for Taxable or Exempt Transfers and the Affidavit for Exempt Transfers. Former affidavits, created in 1996, and using the term “arm’s length transaction” were decertified.

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“Luke … I am your lawyer.”

Deed recording fees of $1.35 (state) and $.55 (county) per $500 or any fractional part of $500 of the value of the real estate are imposed by §12-24-10 of the South Carolina Code for the “privilege” of recording a deed. This has not changed. Also unchanged is the list of 15 exemptions, and the statement that deeds of distribution and deeds transferring property from a trust to a trust distributee upon the settlor’s death are not subject to the fees.

One statutory change from 2015 was addressed in the Information Letter. Code §2-59-140 was amended in June to provide in subjection (E) that deductions from “value” include “any lien or encumbrance on realty in the possession of a forfeited land commission which may subsequently be waived or reduced after the transfer under a signed contract or agreement between the lienholder and the buyer existing before the transfer.” This change was added to Item 5 of the Affidavit for Taxable and Exempt Transfers.

Real estate practitioners can find the Revenue Ruling and the Information Letter at www.dor.sc.gov. Be sure to use the new forms!