A sale of real property by a foreign person (the transferor/seller) 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 dispositions (sale, exchange, liquidation, redemption, etc.) of real property. The burden of collecting and remitting the amount due falls on the transferees/buyers, certain purchasers’ agents, and settlement officers. The withholding amount for individual transferors/sellers is 15% of the “amount realized” which is defined in the IRS Code as the “sales price.” See definition of terms and procedures unique to FIRPTA (external link). If you are considered a foreign person for tax purposes please contact our office to discuss this further so that your closing is not delayed. All transferors/sellers have been notified of this tax compliance requirement in both the listing agreement as well as the contract of sale. At the time of settlement transferors/sellers will be asked to sign an affidavit confirming their status as a US taxpayer or alternatively a foreign person subject to this withholding tax.
Transferor/sellers are strongly encouraged to seek tax advice from an advisor well versed in FIRPTA withholding for further explanation and to see if they qualify for an exemption or of the possibility of filing in advance for a determination of a more precise withholding amount.
See the IRS website for further information.
