Foreign Investment In Real Estate Property Tax Act
The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 is a federal law in the United States that requires foreign persons to pay taxes on the sale of American real estate. The law is designed to ensure that foreign investors pay their fair share of taxes on real estate transactions in the US.
What is FIRPTA?
FIRPTA is a tax law that requires foreign persons to pay taxes on the sale of American real estate. The law was enacted in 1980 and has been amended several times since then. The law applies to both residential and commercial real estate transactions.
FIRPTA requires the buyer of real estate to withhold a portion of the sale price and remit it to the Internal Revenue Service (IRS). The amount of the withholding tax is based on the sale price of the property and the status of the seller.
Who is Subject to FIRPTA?
FIRPTA applies to any foreign person who sells real estate in the US. The term "foreign person" includes individuals, corporations, partnerships, trusts, and estates that are not US citizens or residents. It also includes entities that are controlled by foreign persons.
If a foreign person sells real estate in the US, the buyer is required to withhold 15% of the sale price and remit it to the IRS. If the foreign person is a corporation, the withholding rate is increased to 21%.
Exemptions from FIRPTA
There are several exemptions from FIRPTA. One exemption applies to US citizens and residents. If a US citizen or resident sells real estate to a foreign person, FIRPTA does not apply. Another exemption applies to certain types of real estate transactions, such as sales of property for less than $300,000.
There are also exemptions for certain types of foreign persons. For example, Canadian residents are exempt from FIRPTA for certain types of real estate transactions.
How to Comply with FIRPTA
Complying with FIRPTA can be complicated, and it is important to seek the advice of a tax professional. If you are a buyer of real estate and you are dealing with a foreign person, you are responsible for complying with FIRPTA.
To comply with FIRPTA, you must determine if the seller is a foreign person. You can do this by asking the seller to complete a withholding certificate, which is a form provided by the IRS. The form requires the seller to provide information about their tax status and their ownership of the property.
If the seller is a foreign person, you must withhold the appropriate amount of tax and remit it to the IRS. You must also file Form 8288, which is a tax return for withholding on foreign persons.
Conclusion
FIRPTA is an important law that ensures that foreign investors pay their fair share of taxes on real estate transactions in the US. If you are a buyer of real estate and you are dealing with a foreign person, it is important to seek the advice of a tax professional to ensure that you comply with FIRPTA. By complying with FIRPTA, you can avoid penalties and ensure that your real estate transaction is completed smoothly.