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FIRPTA: Foreign Investment in Real Property Tax Act

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Foreign sellers are subject to a withholding of up to 15% (of the Gross Sales Price) unless the transaction is exempt from FIRPTA withholding.

  • Most common exemption: Sales Price is not more than $300K. The buyer or a family member must have plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two twelve month periods after sale. [ FIRPTA Withholding (external link) ]

Other Exemptions that may apply are:

  • Another common exemption is for the Seller to provide a certificate stating that they are not a foreign seller (in other words, they are a U.S. citizen or resident alien).
  • The seller may also apply for and receive a withholding certificate prior to close of escrow from IRS excusing withholding or reducing withholding.

Important to Note: If a foreign seller does not have a United States IRS issued Individual Taxpayer Identification Number (ITIN) they should make application using the US tax form W-7.

 

NOTE: If the seller believes she may be eligible for an IRS Withholding Certificate, she should contact a CPA or tax attorney regarding application form 8288-B in order to obtain a determination from the IRS whether a lesser amount is due.

The buyer or a member of their family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant.

The information contained herein is for general information only and should not be relied upon for tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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