What is FIRPTA and how does it affect internationals?
Congress created FIRPTA based on reports that foreign investors were purchasing U.S. real estate and then selling it at a profit without paying any U.S. taxes. Consequently, FIRPTA created a requirement forcing buyers to withhold 10 percent of the purchase price and remit it to the Internal Revenue Service at the time of closing, subject to a few exceptions.
Usually, the settlement agent is the party that withholds and remits the funds to the IRS, but the buyer is legally responsible.
Foreign sellers? FIRPTA withholding increases to 15%
Congress recently made changes to the U.S. Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). The new FIRPTA rules increase the withholding tax paid by foreign sellers of certain properties effective Feb. 17, 2016.
How new withholding works
The law considers three levels of property purchases: A personal residence of $300,000 or less; a personal residence worth more than $300,000 but less than $1 million; and properties valued at $1 million or more:
$300,000: Foreign sellers currently pay no FIRPTA tax, and this doesn't change under the new rule, providing the property will be used as a residence
$300,000-$1 million: The current 10 percent FIRPTA tax does not change under the new rule, providing the property will be used as a residence
$1 million-plus: The FIRPTA tax goes up from the current 10 percent to 15 percent after Feb. 16. In this $1 million-plus category, it doesn't matter whether the property will be used as a residence or not.
For specific information on a particular case we can refer you to tax lawyer or specialized accountant, who can find out about exceptions.
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