What is FIRPTA?
FIRPTA is the Foreign Investment in Real Property Tax Act of 1980. The Act essentially authorizes the United States to tax foreign persons on their dispositions of real estate.
Who is considered a "Foreign Person"?
A "Foreign Person" is defined by the IRS as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate. It does not include resident alien individuals.
What is the rate of withholding?
The rate of withholding is currently fifteen percent (15%) of the amount realized on the disposition.
I am a U.S. Citizen or Resident Alien, what do I need to do?
If you are a U.S. Citizen or Resident Alien, FIRPTA withholding will not be required, but you will need to sign a certification at closing stating that you are not a foreign person, and you must also provide your name, U.S. tax identification number, and home address.
Are there any exceptions?
Yes, there are several exceptions. The most common exception applies when the amount realized is not more than $300,000.00 and the buyer intends to reside in the property for at least 50% of the time during the first two twelve month periods immediately after acquisition.
Please note that this article is not intended to provide and should not be relied upon for tax, legal, or accounting advice. You should consult your own advisor before engaging in any transaction.