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What is FIRPTA and do I pay it?

March 13, 2018

 

Many people wonder about FIRPTA and who is responsible for paying for FIRPTA when a foreign individual sells US real property.

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires the purchasers to withhold a portion of the purchase price from the amount given to the seller whenever a foreign individual sells US real property. This withholding allows the US to tax the foreign individual on their sale of their property and encourages the person to file a US tax return, just like when a US citizen or resident sells their property.

Even though it is the duty of the purchaser to withhold the funds, the purchaser is not responsible for the tax payment, rather this amount is deducted from the amount the seller will receive from the closing. However, if the purchaser fails to withhold the required amount, the purchaser may be subject to tax liability.

FIRPTA is applicable to any sale of US real property interest. Typically the amount withheld is 15%, however 35% must be withheld when a foreign corporation distributes income to its shareholders derived from the sale of the US real property. Normally, the amount withheld will be greater than the taxes owed by the foreign person, therefore there is incentive for the foreign person to file a US tax return.

There are several exceptions to the FIRPTA withholding requirement, however a lesser known exception that many foreign investors use is if the purchaser acquires the property for use by the purchaser or the purchaser’s family’s primary residence and the sales price is $300,000 or less.

The Closing Agent LLC will assist you in the sale and/or purchaser of your property to ensure FIRPTA and the appropriate exception is used. Please contact Barry L. Miller, P.A. at 407-423-1700 or email us at info@BarryMillerLaw.com for a free consultation if you, or someone you know, has legal questions concerning FIRPTA.

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