FIRPTA stands for the Foreign Investment in Real Property Tax Act that was enacted by Congress in 1980. The purpose of this Act is to allow the US government to collect a withholding tax on the sale of US real property owned by a foreign person.
Who is Subject to FIRPTA
FIRPTA applies to all foreign persons, foreign corporations, and foreign partnerships, selling or transferring property located within the United States. Below is a list of question and answers pertaining to FIRPTA requirements:
- Who is responsible for FIRPTA withholding? According to the IRS rules, the responsibility for withholding potential income tax due in the amount of 10% of the purchase price is on the buyer of the real property from a foreign entity. If the payment is not made by the buyer, the IRS can seize the real property (or other assets of the buyer).
- What are the residence exemptions for sales not exceeding $300,000? When the selling price does not exceed $300,000, FIRPTA regulations state there is no withholding based on whether on the date of transfer the buyer plans on residing on the premises for at least 50 percent of the number of days that the property is used by any person during each of the first two 12-month periods following the date of the transfer. The residence is not required to be the buyer’s principal residence, and the buyer is not required to be a US citizen or US resident. But the buyer must be an individual and the purchase must be a residence, not land on which a residence will be constructed.
- What is considered the 50% Rule? Simplistically, if the buyer, at the time of sale, has plans to reside at the property, more than it will be rented out, over each of the following two 12-month periods, the sale is potentially eligible for the exemption.
- What is the percentage of withholding under FIRPTA? If the selling price exceeds $300,000 but does not exceed $1,000,000, and the buyer meets the same “Residence” and “50% rule” described above then the 15% withholding rate is potentially reduced to 10%.
Contact White Sand Tax Solutions for FIRPTA Transactions (941) 263-1545
Real Estate Agents, Buyers, and foreign Sellers should always make sure the transaction is being handled by a Settlement Agent, such as White Sands Tax Solutions. We are knowledgeable about the FIRPTA requirements and can make sure the transaction is properly handled to avoid civil and criminal penalties associated with noncompliance.
At White Sands Tax Solutions we embrace technology and contactless service while focusing on being personable and available for all your tax needs. We are invested in creating a positive relationship with our clients and providing exceptional service in a modern business environment. Give us a call with your tax questions or set up an appointment to address your tax concerns. Spend more time enjoying your life and less on your taxes – call White Sands Tax Solutions Today!