Page 14 - Montana Home Sellers Guide

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FIRPTA
Understanding FIRPTA
QUALIFIED SUBSTITUTES, WITHHOLDING AND
OTHER MATTERS OF IMPORTANCE
FOR FULL ESCROW SERVICES, INCLUDING THE SERVICES OF A QUALIFIED SUBSTITUTE AND THE REMITTING OF THE
WITHHOLDING TAX AND THE RELATED FORMS TO THE IRS, CONTACT YOUR CHICAGO TITLE LOCAL OFFICES.

What is FIRPTA? What may a buyer
FIRPTA Withholding Rate Increased to 15% and seller do with a Certification
“FIRPTA” stands for the Foreign Investment in Real Property of Non-Foreign Status?
Act (Internal Revenue Code Section 1445). A Certification of Non-Foreign Status may be delivered to
Why is FIRPTA Important? a Qualified Substitute, that is, to a qualified third party
FIRPTA requires that a buyer of U.S. real property withhold a tax such as a title company, for safe storage and for availability
to the IRS for six years after closing.
if the seller is a foreign person or entity. Liability for
noncompliance may affect the buyer or the seller. Are there exemptions that may apply when the
C C C C C C C seller is foreign?
How may a buyer and a seller comply with FIRPTA
M M M M M M M
when the seller is non-foreign? In some circumstances when a seller is foreign, the
Y Y Y Y Y Y Y withholding tax will not apply or will apply at a reduced rate.
To inform the buyer that withholding is not required, the
CM
CM
CM
CM
CM
CM
CM
seller may use a Certification of Non-Foreign Status to
MY
MY
MY
MY
MY
MY
MY
certify under penalty of perjury that the seller is a non-foreign
CY CY CY CY CY CY CY
person or entity.
CMY
CMY
CMY
CMY
CMY
CMY
CMY
Withholding Based on Buyer’s Intended Use of the Property
K K K K K K K
NO INTENT TO USE
BUYER INTENDS TO USE THE PROPERTY AS A RESIDENCE* NO AS A RESIDENCE*
Any Sale
YES Amount
Withholding is
SALES PRICE DETERMINES WITHHOLDING AMOUNT required at the rate of
15% of the sales price
SALES PRICE SALES PRICE SALES PRICE
$300,000 Between More than
or less $300,000 & $1 Million
$1 Million
Transaction is Withholding is Withholding is
exempt from required at a reduced required at the rate of
withholding. rate of 10% of the 15% of the sales price
sales price.

* The property is acquired for use as a residence if on the date of the transfer the buyer (including a member of the buyer’s
family) has definite plans to reside at the property for at least 50 percent of the number of days that the property is
used by any person during each of the first two 12-month periods following the date of the transfer. 26 CFR 1.1445-2.
This is for informational purposes only. It is not tax advice or legal advice. All questions and decisions regarding FIRPTA
compliance should be directed to and reviewed with the reader's tax lawyer or other tax professional.

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