FIRPTA and the Withholding Tax on US Real Property
What is FIRPTA?
FIRPTA stands for the Foreign Investment in Real Property Tax Act. This Act is enforced by the Internal Revenue Service. Foreign national sellers have specific requirements that apply to them when selling U.S. real property. If a seller is not a U.S. citizen or resident, FIRPTA requires a prepayment to the Internal Revenue Service of a withholding tax on the real property. How does FIRPTA affect foreign national sellers? Here is a brief explanation of the withholding tax regulation on real property and the limited exceptions:
Does FIRPTA apply to me?
Effective February 1, 2016
Buyer intend to use
Sales price is
Sales price is greater than
Sales price is over
|Yes||Exemption*||15% withholding||15% withholding|
|No||15% withholding||15% withholding||15% withholding|
*If an exemption is being taken under above guidelines and no remittance is being sent to the IRS, a buyer must sign an “Intent to reside” affidavit at closing.
Who is responsible for sending the 15% tax to the Internal Revenue Service?
The title company or closing attorney is required to send the funds to the IRS within 21 days of closing.
Does FIRPTA apply to individuals or corporations?
FIRPTA applies to both foreign national, non-resident alien individuals, and companies. This includes foreign companies that may be registered do to business in the U.S., but are still regarded by the Internal Revenue Service as foreign entities for tax purposes. Individuals holding U.S. citizenship, passports, or green cards, are exempt from withholding. Certain other visas may be exempt, but please consult your tax advisor or Certified Public Accountant (CPA) for more information
Should I hire a Certified Public Accountant to help me with FIRPTA?
Yes. FIRPTA applications and returns can be a complicated process, riddled with delays and nuances. In addition, frequent follow up is required.
When should I start the FIRPTA process?
Immediately. As soon as the individual or company is considering selling the real property, they need to start planning for FIRPTA.