What is FIRPTA?
FIRPTA stands for Foreign Investment in Real Property Tax Act and it is the Federal law governing the taxation & withholding by foreign persons selling US real estate.
Under FIRPTA, the buyer is required to withhold 10% of the gross sales price from proceeds as a “deposit” due to IRS within 20 days after closing; when purchasing from a foreign seller (certain exceptions apply) and the total sale is more than $300,000 but less than $1,000,000.
New for February 16, 2016 – If the total sale is more than $1,000,000 the buyer is required to withhold 15% of the gross sales price.
A “foreign person” is defined under FIRPTA as a:
- nonresident alien individual,
- foreign corporation,
- trust or
- foreign estate.
How to Avoid FIRPTA?
Affidavit can be executed by an “eligible” buyer.
Withholding Certificate may allow lesser amount withheld at closing.
No withholding required under FIRPTA if:
- The sales price is $300,000 or less, and
- The buyer signs affidavit at or before closing stating they intend to use property for personal purposes for at least 50% of time property occupied for the each of the first two 12 month periods immediately after closing.
- The amount of tax required to be withheld under FIRPTA cannot exceed total tax liability. A seller or buyer may apply for a withholding certificate (IRS Form 8288-B) allowing less than 10% withheld or installment payments.
- 90 days to issue from receipt of application