People all over the world invest in United States real estate. However, not many are aware of what is implied when buying property from a foreign person. Did you know the Foreign Investment in Real Property Tax Act of 1980 may apply to your purchase?
Look no further, here we will review the basics of the Foreign Investment in Real Property Tax Act of 1980, also known as FIRPTA.
What is FIRPTA?
FIRPTA is a tax law that applies to foreign companies and investors when they sell real estate investments in the U.S. In other words, FIRPTA allows the United States to tax foreign persons on dispositions of U.S. real property interest.
Under FIRPTA, if you buy U.S. real estate from a foreign person, you may be required to withhold 15% of the amount realized from the sale, which is normally the purchase price. The retained money is how the IRS collects U.S. tax owed by foreign sellers.
Who Pays FIRPTA Taxes?
To better break it down, FIRPTA applies to the following foreign persons: non-resident alien individuals, foreign corporations, foreign partnerships, foreign trusts, foreign estates, etc.
How does FIRPTA work?
If the law applies to the purchase you have made, then within 20 days of the sale, you are required to file Form 8288 with the IRS. In addition, you must submit the 15% withholding. It is crucial to understand how FIRPTA works because if you don’t withhold the correct amount, file the form on time, or submit the withholdings, penalties are applied.
Are there any exceptions for FIRPTA?
There are some exceptions applied. For instance, FIRPTA law does not apply if you are buying a residence for $300,000 or less or the property is not a U.S. real property interest.
Tax Attorney:
It’s important to maintain informed about tax laws that may pertain to your situation. To learn more about FIRPTA, including whether the law applies to your purchase, schedule your FREE 15-minute call here.
