FIRPTA: What you Need to Know

1. What is FIRPTA? 

FIRPTA is the acronym for the Foreign Investment in Real Property Act. This law was passed in 1980, forcing foreign investors to pay tax on the sale of US property investments. Before the law was passed, foreign investors were exempt from taxes, but are now required to file a US tax form, and the withholding will apply as a credit against any capital gains tax due on the sale of the property.  

2. How much do I pay? 

The withholding amount is based on the amount realized. Specifically, 15% of the gross sales price is withheld. There are some exemptions to this. For example, if the gross sales price was less than $300, 000 and the buyer is using it as a primary residence, they are exempt from the withholding. 

3. Who is liable?  

The buyer is liable for the withholding, not the seller if they are a foreign person or non-US citizen.  

4. Who is exempt? 

If the property in question is being used as a residence, the buyer may be exempt. However, the buyer or their family must have definitive plans to reside in the house for at least 50% of the days in the year. If plans change, or the property is not found to be a residence, the buyer would be responsible for the amount of the withholding, plus a penalty.  

5. How can a Title Company help? 

The details and verbiage of FIRPTA can be extremely confusing, especially for those of us who do not deal with legal jargon on a daily basis. Working with a certified Title Company and CPA could very likely save you a significant amount of money, and will certainly save you in time and effort trying to decipher the ins and outs of the law. A certified CPA will know the minutia of exemption policies and be able to determine exactly if and how much you need to withhold based on the specifics of your situation.