Many unsuspecting buyers have no idea that they may have to withhold some of a sellers proceeds and send them to the IRS or the state taxing agency.
If there are taxes owed on the sale of a property, taxation agencies require the buyer (or qualified substitute) to withhold some or all of the seller’s proceeds. Why? Because real estate contracts are between buyer and seller. Whether there are attorneys, title, escrow or other settling agents involved or not. So ultimately, the buyer will be paying the seller for the property, and this is the only sure-fire way for the government to get their cut. Yes, taxes may be due, even if the transaction is part of a “1031 Exchange”.
Should you withhold 3 1/3% of the sales price or the seller’s income tax rate % of the gain? What if the property is in a trust? Does it matter if the property was the seller’s primary residence? Who is liable if you’re not purchasing it by yourself?
There are limitations on withholdings, possible penalties and fines for buyers as well as sellers, and proper paperwork filing needs. If you hire a Real Estate Escrow Person (REEP), they usually handle these withholding and paperwork needs (collecting all social security numbers, calculating alternative withholdings, forward funds & vouchers to the proper agencies, etc.).
When buying a home from a private seller, its just as important to use a Realtor as when you’re buying one that is listed by an agent. In most cases I’ve talked a seller into allowing me to represent my buyer in these Private Seller Transactions.
There are Many pitfalls in buying a home and for most people its the most expensive item they will ever buy, with the most possibilities of something going wrong and the most headaches of any other purchase.
I have 27 years of experience working in real estate, trained other agents, managed and served on boards. Please allow me to use that experience to help with this most important transaction.