Foreign Investment in Real Property Tax Act

tax withholdings

FIRPTA, the Foreign Investment in Real Property Tax Act, was enacted in 1980 and provides that if the Seller of real property is a foreign person, the Buyer must withhold a tax equal to between 10% and 15% of the gross purchase price, unless an exemption applies. A foreign person is a nonresident alien individual. A resident alien is not considered a foreign person under FIRPTA.

Most Common Exemption

Sales Price is not more than $300K. The buyer or a family member must have plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two twelve month periods after sale.

Other Exemptions that may apply are

Another common exemption is for the Seller to provide a certificate stating that they are not a foreign seller as a result of being a U.S. citizen or resident alien. The seller may also apply for and receive a withholding certificate prior to close of escrow from IRS excusing withholding or reducing withholding.

WITHHOLD OF TAX AND EXCEPTIONS

According to the IRS, the disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property. However, there are list exceptions that qualify for exceptions from FIRPTA withholdings.

FIRPTA Holding Of Tax

FIRPTA Withholding Exceptions