The Foreign Investment Real Property Tax Act (“FIRPTA”) is a federal law which requires the buyer of U.S. real estate to withhold a percentage of the gross sales price to secure payment of U.S. income taxes when the Seller is a non-resident foreigner.
Sales Price is $300,000.00 or Less: There is no withholding required if the buyer intends to use the property as his residence. Otherwise, the withholding rate is 15% of the gross sales price.
Sales Price is Greater than $300,000.00 but not more than $1,000,000.00: If the buyer intends to occupy the property as his residence, a 10% withholding rate applies. Otherwise, the withholding rate is 15%.
Sales Price is Greater than $1,000,000.00: The 15% withholding rate applies whether or not the buyer intends to occupy the property as his residence.
The burden of withholding and paying this money to the I.R.S. ultimately falls on the buyer, which could result in a harsh outcome as the buyer receives none of the sale proceeds. Our advice is to make sure that the closing agent or title company is aware that the seller may be a non-resident foreign seller, and that it withholds the appropriate amount from seller on the closing statement. Of course, if there are any questions as to whether the withholding applies for your particular sale, or the amount to be withheld, please consult your tax professional.
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