FIRPTA and Options to Reduce Withholding
Introduction to FIRPTA and Options to Reduce Withholding
FIRPTA stands for the Foreign Investment in Real Property Tax Act that was enacted by congress in 1980. Its purpose is to allow for the US government to be able to collect a withholding tax on the sale of US real property owned by a foreign person. The law was significantly changed in 2016 to increase the percentage of tax withheld to 15%.
What is Real Property?
What is the FIRPTA withholding rate?
How do I calculate the dollar amount?
There must be something we can do? This is outrageous!!
How does a Personal Use Affidavit work?
Let’s break down some common misconceptions:
First, the intention of the Buyer must be real. The IRS will consider a change in circumstances only if it could not have been reasonably anticipated at the time of the sale.
Second, the property is not required to be the primary residence of the Buyer, nor does it need to be occupied at all times. The time that the property is vacant does not factor into the formula. As an extreme example, the Buyer could use the property for two days out of the year, and rent it out for one day and it would still qualify for this Affidavit.
Third, the Buyer must purchase the property in their individual names in order to qualify.
Fourth, bare land or an empty lot cannot qualify because there must be a dwelling of some sort on the property.
Fifth, the Buyer signing the Affidavit does not make this transaction any more risky for the Buyer. The Buyer is responsible for making sure that FIRPTA is addressed and this is a perfectly appropriate form for the Buyer to sign.
Sixth, the Affidavit can be used at the same time as the other provisions to reduce FIRPTA withholdings listed below.
What is a Withholding Certificate?
Is FIRPTA forever?
Any final words of advice?
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