What is FIRPTA?

FIRPTA is an acronym that stands for “Foreign Investment in Real Property Tax Act”, the Foreign Property Investment Tax Act. FIRPTA is not a tax, it’s a retention. Withholding is an amount used to pay potential taxes. 
The IRS applies a withholding to foreign sellers (sellers) to ensure they will pay their fair share of taxes. In other words, the IRS holds the potential tax due “hostage” until the seller submits a tax return to show what they really owe.

Who is responsible for retention?

The FIRPTA regulations require the buyer to withhold 15% of the gross value of the purchase of a property at the time of the purchase of US property from a foreign person.

Which real estate sellers are considered foreign persons in the US?

A foreign person is a real estate seller who: a) is a nonresident in the United States; b) a foreign company that did not elect to be treated as an American corporation; c) a foreign LLC (Partnership); d) a foreign Trust; and e) a foreign property. A resident alien, choosing to be treated as a US resident, is NOT considered a foreigner under FIRPTA.

What if the buyer determines that the seller is not a foreign person?

Seller can complete Non-Foreign Status Certification. The buyer will maintain this certification for his records. Withholding is not required for this type of transaction.

What if the buyer determines that the seller is a foreign person?

The buyer must retain 15% of the gross value of the purchase unless there is an exception and retention may be reduced. All funds must be submitted in a timely manner.

What is considered timely?

The amount withheld must be sent within 20 days after the close of sale. If a Withholding Certificate is requested, all necessary funds must be sent within 20 days of the Certificate of Withholding notice.

EWhat if funds are not sent on time?

Interest and penalties will apply to the period from the 21st day after the date of transfer until the day the IRS receives payment. These fees are paid by the buyer.

Is a Certificate of Withholding right for me?

According to the IRS, retention may be reduced if the buyer or the direct family (spouse and children) has defined plans to reside on the property at least 50% of the number of days the property is in use by any person count the days when the property is vacant) during the next two consecutive periods of 12 months after the transfer of the property.

– If the buyer signs an affidavit to the above statement and the gross sale price of the property is less than $ 300,000 USD, then the withholding may be reduced to 0%. If the gross sale price of the property is between $ 300,000 USD and $ 1,000,000 USD, then the retention may be reduced to 10%.

– For this exception, the transferee must be an individual. It is not available to buyer on behalf of legal entity. In addition, the property must be habitable, such as a house or condo. Not available for vacant lots. Generally, the title company or the closing attorney will have access to such affidavit.

For more information, contact us. We at Dominium have a team prepared to offer you a service of quality and excellence.