Anyone speak legaleeze?

Discussion in 'Homesteading Questions' started by pcdreams, Aug 16, 2004.

  1. pcdreams

    pcdreams Well-Known Member

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    Can anyone explain this to me? Doesn't make much sense to my brain :)

    Income Tax Withholding Requirements if Seller is a Nonresident of Vermont and/or Subject to Tax Under the U.S. Foreign Investment in Real Property Tax Act: If seller is a nonresident of Vermont, unless a withholding certificate is issued by the Vermont Commissioner of Taxes in advance of the closing, Purchaser shall withhold 2.5 percent of the total purchase price and file a Withholding Tax Return with the Vermont Department of Taxes. In addition, if the sale of the Property subjects Seller to the payment of federal tax under the Foreign Investment in Real Property Tax Act (FIRPTA), unless a withholding certificate is issued by the Internal Revenue Service, Purchaser shall withhold such ten percent of the total purchase price and file a Withholding Tax return with the Internal Revenue Service. If Purchaser fails to withhold such taxes when required to do so, Purchaser may be liable to the respective taxing authorities for the amount of such tax. Purchaser shall have the right to reasonably request evidence that Seller is exempt from payment of either tax in the form of a certificate of residence or non-foreign status. In the event Purchaser is determined to be liable for the payment of either tax, Seller shall indemnify and hold Purchaser harmless from all such liability together with any interest, penalties and reasonable expenses, including attorneys' fees, incurred by Purchaser.

    That's all gibberish to me.

    Let me give you a little background about the purchase (by us). The seller is a resident of California, We are residents of MO.

    To make things even more strange, she is owner financing us but is doing this through a real estate agent. My only thought is that since she is in Cali and the land is in VT ....
     
  2. blhmabbott

    blhmabbott We're gettin' there!

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    I've done more than my fair share of legal work, and though I'm not a professional, this is how I interpret it:

    1) "If seller is a nonresident of Vermont, unless a withholding certificate is issued by the Vermont Commissioner of Taxes in advance of the closing, Purchaser shall withhold 2.5 percent of the total purchase price and file a Withholding Tax Return with the Vermont Department of Taxes. "

    Since the seller is in California, you need to find out if he/she has this witholding certificate. If not, you take 2.5% of the purchase price and pay Vermont taxes.

    2) "In addition, if the sale of the Property subjects Seller to the payment of federal tax under the Foreign Investment in Real Property Tax Act (FIRPTA), unless a withholding certificate is issued by the Internal Revenue Service, Purchaser shall withhold such ten percent of the total purchase price and file a Withholding Tax return with the Internal Revenue Service."

    This sounds like it's talking about federal taxes that would be owed to the seller for whatever reason. If this is the case, then it's saying you would hold out 10% of the purchase price and pay it to the IRS.

    3) "If Purchaser fails to withhold such taxes when required to do so, Purchaser may be liable to the respective taxing authorities for the amount of such tax.

    If your obligated to pay these taxes (instead of the seller) and don't do it when you purchase the property, you're gonna have to do it later.

    4) "Purchaser shall have the right to reasonably request evidence that Seller is exempt from payment of either tax in the form of a certificate of residence or non-foreign status. In the event Purchaser is determined to be liable for the payment of either tax, Seller shall indemnify and hold Purchaser harmless from all such liability together with any interest, penalties and reasonable expenses, including attorneys' fees, incurred by Purchaser."

    The seller has to prove by that little piece of paper whether or not he/she is legally responsible for the taxes. If they have that piece of paper then you have to pay the tax. If you DO pay the tax, then the seller can't come back on you (?).

    Again, I'm no professional and I'm just going on my legal work experience. I would DEFINATELY have this looked over by your attorney AND the tax assessors office. I'm sure they would be very helpful in explaining this to you, and to the best of my knowledge, the tax assessors office doesn't charge anything. Your attorney would be a different matter. Good luck!
    Heather
     

  3. pcdreams

    pcdreams Well-Known Member

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    ok That was about how I read it also.

    something interesting though is the owner is financing this property, so how would I, (as the purchaser) withhold anything?

    We have in the contract that seller pays all closing cost, however I'm not sure that would include the tax...
     
  4. Rivka

    Rivka Well-Known Member

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    taxes are generally considered outside of the closing costs. Closing costs usually include title search, title insurance, recording fees. Local custom dictates that though.

    Usually you don't need a lawyer for closing on property, since the mortgage company does most of the work. In this case, since it is owner financed, you want to make sure all of your rights are protected through the financing and the property.
    I've read your posts with interest, since I'm moving to VT tomorrow. We're just renting for now, but I've bought in the past (and I have a law degree) Given the history of the flakey agent you've posted, I'd suggest getting a VT lawyer to protect your interests.
     
  5. pcdreams

    pcdreams Well-Known Member

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    Thanks for the info.

    where abouts are you moving?

    anyway good luck with the move and I hope you like VT ;)
     
  6. Jan Doling

    Jan Doling Well-Known Member

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    For federal taxes on sale of property, the seller may be exempt if the sale price is less than $250,000 (if seller is unmarried) or less than $500,000 (if seller is married) and seller has lived on property for at least 2 of the last 5 years, not used it for business purposes or rented it out. You may qualify for exemption from the state sales tax for similar reasons, so you should check with an attorney.
     
  7. joan from zone six

    joan from zone six Well-Known Member

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    .........and some folks think the income tax should not be replaced by a simple sales tax ..............
     
  8. Rivka

    Rivka Well-Known Member

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    The capital gains tax exemption (which is what Jan Doling is talking about) is different than a sales tax. There is no general federal sales tax on the sale of property, and my guess is that the foreign investment act is about taxing foreign investors (like the Japanese company that owns Rockefellar Plaza)

    I'm moving to central VT. Meant to move today, but old job won't let me leave. Tomorrow at 6am I'm off!

    Hope the rest of your sale goes smoothly.
     
  9. charles

    charles Well-Known Member

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    Abracadabra, you are now an agent of the government, and involuntary employee. Yes, you are a tax collector. You will not be paid for your services for the government, you are a conscript.

    First income taxes were instituted, then, your employer was forced to keep part of your earinings from you (you could apply to get some of it back), and now you, and individual, are forced to get the social security number of a stranger, report monies he gave you, and withold monies to pay for tax.
     
  10. In AZ I use a Title Insurance Company to close escrow. Since they also insure the title they will want to make sure that everything is done in conformance to the applicable laws so nothing arises to cloud the title later, hence Title Insurance. I would bet you can get with the Title Company you are going to use and their representative can explain everything to you. Now I know nothing about how things are done in Vermont but that is what I would do here.
     
  11. pcdreams

    pcdreams Well-Known Member

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    well I finally got a reply from my agent. here's what she said:

    Transfer tax is a closing cost to you and will be
    1.25% of the sales price. This was figured in to your closing costs.

    This is in regards to income tax withholdings. Due to the fact that
    they reside out of the state your attorney will withhold a portion of the
    proceeds for state taxes that may be due. The sellers will then file a
    return and may get a portion returned to them.


    so it sounds like the income tax withholdings will come out of the downpayment. Is that how yall understand it?
     
  12. yankeegirl

    yankeegirl New Member

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    Vermont land records are local, not centralized, so local lawyers do the title searches, not big companies. It is a rural state with few population centers, so those big companies can't make the money they want to make. Support a local lawyer, support the community, not big business!

    The reason for making the buyer responsible for getting the seller to pay their taxes is so they get paid! If the responsibility was only on the out of state seller, guess what? They would never pay them, and the state couldn't force them to. It's good yankee common sense!