FIRPTA stands for "Foreign Investment Real Property Tax Act" and was enacted in 1980. This tax law states that when a foreign investor sells a property, the buyer must deduct (10% or 15%) of the sale price from the foreign seller. The law states that at closing, the 10% must be sent to the IRS within 20 days, unless certain information is sent to the IRS prior to the date of closing (Form 8288-B, application for a Withholding Certificate). If this is done, then the title company can hold the (10% or 15%) in an escrow account until the IRS has made a decision regarding capital gains and issues a Withholding Certificate. E & F Accounting Group LLC can help a foreign real estate seller or foreign real estate investor navigate real estate and closing terminology, assist with communication between buyers and sellers, their agents and their lenders and ensure all parties are meeting the legal requirements of FIRPTA.
FIRPTA withholding amount effective February 16, 2016. Section 324 of the PATH ACT changes the base FIRPTA Withholding rate to fifteen percent (15%). 15% Withholding Applies for Sales up to and Including $300,000.00 and Purchaser Does NOT Intend to Occupy the Property as a Residence If the gross sales price is $300,000.00 or less and the purchaser does not intend to occupy the property as a residence, then the 15% withholding rate applies.
10% Withholding Applies for Sales between $300,000.00 and$1,000,000.00 With Intent to Occupy as a Residence
When the purchaser intends to use the property as a residence and the gross sales price is greater than $300,000.00 but no more than $1,000,000.00, the withholding rate shall be 10% of the gross sales price. The purchaser has to intend to occupy the property as his/her residence 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 purchase.
15% Withholding Applies for Sales in Excess of $300,000.00 When the Purchaser Does NOT Intend to Occupy the Property as a Residence.
If the gross sales price exceeds $300,000.00 and the purchaser does NOT intend to occupy the property as a residence, then the 15% withholding rate applies.