税务文章

What Is FIRPTA Withholding?

The Foreign Investment in Real Property Tax Act (FIRPTA) Withholding is a tax charged by the United States Federal Government to foreign investors who deal in real estate. The Foreign Investment in Real Property Tax Act was made federal law in 1980. This piece of legislation was designed to prevent foreign investors from purchasing and selling large amounts of American farmland, tax-free. FIRPTA seeks to prevent foreign investors from avoiding capital gains taxes on the sale of various types of U.S. real property interest, from land to stocks and bonds. The Foreign Investment in Real Property Tax Act still exists today and primarily impacts Americans that engage in real estate transactions with foreign people or corporations.

Under FIRPTA, a portion of the capital gains from a transfer of property between an American and a foreign person or company must be withheld. While the IRS imposes a standard rate, the exact amount withheld will depend on the gain from the sale itself.

Who Is Responsible for Paying FIRPTA Withholding? 

The person responsible for paying FIRPTA withholding is always the one who sells the property. Sometimes, this is the foreign investor; or it's the U.S.-based realtor that represents them and collects and processes their required forms and documents. If you are classified as a foreign individual, the rate of FIRPTA withholding is 15% of the purchase price. Withhold this particular withholding tax when you close on your property deal. 

The rate of FIRPTA withholding for a foreign corporation is equal to 21% of the gain. Domestic corporations tax at 15% (10% for dispositions before February 17, 2016) of the foreign seller's gains. If an LLC owns the property in question with a single member, the FIRPTA withholding remains 15%. However, if the LLC has a partnership, the FIRPTA rules do not apply.

What is a U.S. real property ?

1) Land;
2) Buildings, including a personal residence;
3) Inherently permanent structures other than buildings;
4) Mines, wells, and other natural deposits;
5) Growing crops and timber; and
6) Personal property associated with the use of the real property.

When to Apply It? 

The law comes into effect when a foreigner invests in real estate (shares, land property, etc.) and the cost exceeds $300K. If this sum is less than $300K, you do not have to pay the withholding tax. This withholding does not apply to foreign investors residing in countries with tax treaties with the USA.

【NOTICE】This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney. Our CPA could be reached at 4253368675 / 4252307538 .