What is FIRPTA and why do we care?
FIRPTA Defenition
FIRPTA, or the Foreign Investment in Real Property Tax Act, is a federal law that imposes tax on the sale of real property by a foreign person or entity in the United States. The purpose of FIRPTA is to ensure that foreign investors pay their fair share of taxes on real estate transactions in the United States.
How Does FIRPTA Impact Your Closing?
Under FIRPTA, foreign persons or entities are required to pay tax on any gain from the sale of real property in the United States. The tax is withheld at the time of the sale and is based on the amount of the gain. The buyer of the property is typically responsible for withholding and paying the tax to the Internal Revenue Service (IRS). However, the seller may also be liable for the tax, depending on the circumstances of the sale.
It is important for foreign investors to be aware of FIRPTA and the tax implications of selling real property in the United States. If you are considering the sale of real property in the United States, it is essential to work with a qualified attorney or tax professional to ensure that all tax requirements are properly met and that you are in compliance with FIRPTA. Failure to pay the required taxes can result in significant penalties and other consequences. By understanding FIRPTA and working with a knowledgeable professional, you can ensure a smooth and successful real estate transaction.
Who Is A Foreign Person?
- Nonresident alien individual
- Foreign corporation
- Some corporations might be considered foreign even if they do business in the United States.
FIRPTA Exemptions:
- Sale price is less than $300,000.00 and the buyer has definite plans to reside in the home for at least 50% of the first 24 months of ownership.
- Seller provides FIPRTA affidavit certifying that they are not a foreign person.
- The buyer receives a withholding certificate from the IRS.
- Seller does not earn anything from the transaction.
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FIRPTA
What Matters & Why
FIRPTA stands for “Foreign Investment in Real Property Tax Act.”
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