Are there U.S. Real Estate Taxes for Foreign Investors?

FIRPTA

FIRPTA is an acronym for “Foreign Investment in Real Property Tax Act of 1980.” FIRPTA is a federal law that requires the Internal Revenue Service (IRS) to collect taxes from foreign persons, corporations, trusts, estates and partnerships when they sell their interests in U.S. real estate. Pursuant to FIRPTA, buyers of American real estate owned by foreign investors are typically required to withhold a portion of the sales price-usually 15%, and remit that portion to the IRS through the filing of IRS Forms 8288 and 8288-A.

The 15% FIRPTA tax on transactions where foreign investors sell U.S. real estate is considered to be a prepayment or security deposit toward any tax liability that the foreign seller may incur on capital gains when the property is sold.

When Does FIRPTA Apply

FIRPTA applies when the seller of real estate is not a U.S. citizen, such as an alien nonresident, foreign corporation, partnership, estate, trust or partnership. FIRPTA applies to the sale of any real property interest including commercial property, residential property, land, etc. FIRPTA applies regardless of the use of the property, including whether it is used for business, investment or personal use purposes.

Buyer Compliance Requirements

Generally, buyers must withhold 15% of the gross sales price, file an IRS Form 8288 and 8288-A and submit the funds withheld to the IRS within 20 days of the closing. Failure to comply can result in buyer penalties for seller’s unpaid taxes, which can include other penalties and interest.

Key FIRPTA Exceptions

U.S. Citizen Seller

If the property is sold by a U.S. Citizen or U.S. Greencard holder, FIRPTA does not apply.

Withholding Certificate

If a foreign seller applies for and receives a withholding certificate from the IRS, the FIRPTA withholding requirement on a transaction can be exempted.

Residential Use with Price of $300K or Less

If the purchase price of a property is $300,000.00 or less, and the buyer intends to use the property as a resident, no FIRPTA withholding is required. 

Seek Professional Compliance Assistance

Ignoring or overlooking FIRPTA requirements can result in serious consequences that are entirely preventable, such as delays in payment of net proceeds to sellers, title companies potentially refusing to issue title insurance without proper FIRPTA compliance and buyers being held liable for full capital gains tax, even if they already paid the sales price to the seller.

Contact a real estate attorney and tax professional to assist with your FIRPTA compliance requirements. Are you interested in getting legal assistance with a real estate closing, having a lease agreement drafted or need help handling another real estate legal matter such as an eviction? We’re here to help. Quick turnarounds and no surprises.

Contact Biazzo Law today at (703) 297-5777 or alyssa@biazzolaw.com to schedule a consultation today. www.biazzolaw.com 

** Information in this blog should not be considered legal advice, nor does it form an attorney-client relationship

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