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What is FIRPTA?

FIRPTA, is the acronym for the Foreign Investment in Real and timely withhold and remit to the IRS.
Property Tax Act which was created in 1980. This allows for
the United States to tax foreign sellers on a dispositions of U. S. W-9 Form-Seller would use to notify the Escrow Company of
real property interests. A disposition means “disposition” for the seller’s status if they are a U. S. Citizen. W-9 is submitted
any purpose of the Internal Revenue Code. This included, but by the seller to the withholding agent (buyer) to show the buyer
not limited to a sale or exchange, liquidation, redemption, gifts that he/she is a U. S. Citizen.
and/or transfers. A U. S. real property interest includes sales
of interests in parcels of real property as well as sales of shares W-8BEN Form would be submitted by the seller to the
in certain U. S. corporations that are considered U. S. real withholding agent (buyer) to notify the Buyer that the seller is
property holding corporations. Persons purchasing U. S. real NOT a U. S. Citizen. This form states “if you receive certain
property interests from foreign persons, certain purchaser’s types of income, you must provide Form W-8BEN to establish
agents, and settlement officers are required to withhold 10 that you are not a U. S. Citizen. You may also be required
percent of the amount realized, unless 1 million dollars and over to submit form W-8BEN to the withholding agent if you are a
is 15 percent of the amount realized. Withholding is intended foreign person and you are the beneficial owner of an amount
to ensure U. S. taxation of gains realized on disposition of subject to withholding.
such interests.
Exemptions
A Buyer or other transferee of a U. S. real property interest is What are the exemptions to FIRPTA?
responsible to withhold the tax from the seller and to pay the tax
to the IRS. If the amount realized is $300,000.00 or less and If the property is owned by a U. S. Citizen, or a Resident Alien
the buyer signs the IRS residency certificate, no withholding is (holder of a green card that has not been revoked), then there
required. If the amount realized is greater than $300,000.00, is no FIRPTA withholding is required.
but less than $1,000,000.00, and the buyer signs the IRS
residency certificate, 10% withholding is required on the full If the seller is a Foreign person, are there any
amount realized. If the amount realized is $1,000,000.00 exemptions available?
or greater, 15% withholding is required on the full amount
realized, even if the buyer signs the IRS residency certificate. Yes, there can be an exemption to the FIRPTA withholding,
For all other sales, including those where the buyer does not but the transaction must qualify. If the seller believes they are
sign the IRS residency certificate, 15% withholding is required. entitled to an exemption, they should contact their tax attorney,
or a CPA as soon as they consider whether to sell the property
It is important to remember that the responsibility for withholding or not. The exemption process can take time and very specific
under FIRPTA is the buyer’s, not the settlement agent’s. If you documentation must be provided to the IRS before the seller
choose to accept this responsibility, however, you must properly can know if they have been approved for an exemption.

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