The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 authorizes the United States to tax foreign persons who are nonresident aliens selling U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property.
Persons purchasing U.S. real property interests (transferee) from nonresident aliens (transferor), certain purchasers’ agents, and settlement officers are required to withhold 15% of the amount realized (the purchase/sales price of the real estate going to transferor) and remit that amount to the Internal Revenue Service within 20 days of the transaction. This withholding amount increases to 21% for foreign corporations.
Withholding is intended to ensure U.S. taxation of gains realized on disposition of real property interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer, you must find out if the transferor/seller is a foreign person/nonresident alien. If the transferor is a foreign person/nonresident alien and you fail to withhold, you may be held liable for the tax.
A transferee is not required to withhold tax in a situation in which the transferee purchases real estate for use as his/her home and the purchase price is not more than $300,000. In this case, the transferee or a member of his family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.
We have partnered with accounting firm FIRPTA Solutions to better serve our clients whose transactions are affected by FIRPTA.