The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. law requiring foreign sellers to pay tax on gains from selling U.S. real estate. Buyers generally must withhold 15% of the total sales price—not just profit—at closing to ensure IRS tax collection. It applies to homes, land, and companies with significant U.S. real estate holdings.
Key Aspects of FIRPTA
- Purpose: Ensures foreign persons pay tax on U.S. real property gains, treating them similarly to U.S. sellers.
- Withholding Rate: 15% of the gross sales price is standard, although a 10% rate may apply in specific cases, and a 0% rate applies to properties under $300,000 if used as a residence.
- Buyer Liability:The buyer is responsible for withholding the tax and must ensure it is sent to the IRS, or they may be held liable for the amount.
- Exceptions:
- Non-Foreign Affidavit: If the seller provides a certification of non-foreign status (e.g., they are a U.S. citizen or Green Card holder), no withholding is required.
- Residence Exception: No withholding is needed if the purchase price is under $300,000 and the buyer intends to reside in the property.
- Reporting: The withholding must be reported to the IRS, and in many cases, the foreign seller will need a U.S. Taxpayer Identification Number (TIN) to file a return and claim a refund if the 15% exceeded their actual tax liability.
- Applicable Property: Includes houses, condos, apartment buildings, commercial real estate, and undeveloped land.