The sale of a U.S. real property interest by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on the sale of U.S. real property interests.

Contrary to popular belief, FIRPTA regulations require that the Buyer comply with said regulations. This makes the Buyer responsible for the withholding of funds from the Seller’s proceeds when a U.S. real property is purchased from a foreign person.

• The total amount required to be withheld at the time of closing, is 15% of the gross purchase price of the property.
• If the purchase price is $300,001 to $1,000,000 and the Buyer has definite plans to reside in the property, the 15% can be reduced to 10%.
• No withholding is required if the final purchase price is $300,000 or less and the Buyer will reside in the property 50% of the time it is in use during each of the first two 12-month periods following the date of transfer.
• If the purchase prices is over $1,000,000 the full 15% is required regardless of the Buyer’s occupancy declaration.

The amount withheld must be submitted to the IRS within 20 days following the day of closing. The title company/settlement agent, attorney, or CPA usually handles the delivery of the funds to the IRS on behalf of the Buyer.

Sellers can also obtain a Withholding Certificate from the IRS, reducing or excluding the required withholding.
When purchasing a home, it is important for the buyer to identify whether it will be a FIRPTA transaction, and if it will be, which of the above scenarios will apply, and which solution is best served.

Lastly, it is highly recommended that the parties work with a CPA and/or attorney to advise them on how to best comply with the regulations, and to assist with completing the required IRS forms, affidavits, etc.

At New Dawn Title Group, we work with many organizations that specialize in this area and we can share their contact information with you upon your request.

Give us a call with any additional questions or concerns you may have regarding foreign sellers and FIRPTA transactions, and we will connect you with the right resource for you.