What You Should Know About FIRPTA, The Foreign Investment in Real Property Tax Act

ATTENTION: Changes to the Foreign Investment in Real Property Tax Act (FIRPTA)
10% withholding becomes 15% withholding on February 16th!

Under FIRPTA, the current US federal statute in the stipulates that when a foreign person sells US real property, at the time of the sale the buyer of the real property is required to withhold 10% of the sales price from the seller and remit that to the IRS.

In 2015, the Protecting Americans from Tax Hikes (PATH) Act changed that requirement so that instead of remitting 10% to the IRS, the amount remitted to the IRS will increase to 15%.

This new 15% remittance begins on FEBRUARY 16th OF 2016!

The PATH Act states that for all real property closings in which a foreign person is selling real property in the US that occur on or following February 16th, 15% will be held back by the buyer and instead remitted to the IRS, EXCEPT UNDER THE FOLLOWING CONDITIONS:

• If the sales price is between $300,001 and $1 Million, and the person buying the property is buying it with the intent of occupying it as a primary residence, in that case, the withholding will remain at 10%.

THIS MEANS THAT WHEN A FOREIGN PERSON SELLS US REAL PROPERTY, THE FOLLOWING RULES WILL APPLY STARTING ON FEBRUARY 16th, 2016:

• When the sales price is $300K or lower and the person buying the property is using it as a primary residence, there will be NO WITHHOLDING REQUIRED.
• When the sales price is in between $300,001 and $1 Million and the buyer is acquiring the property as a primary residence, 10% withholding will apply.
• Regardless of the sales price, when the buyer is not acquiring the property as a primary residence, 15% withholding will be required.

If a foreign person is selling US real property, no withholding will be required when:

• The buyer of the property intends the property to be a primary residence and the price is lower than $300K
• The seller is able to provide a “Non-Foreign Affidavit.”
• The seller is able to provide an IRS-provided “Withholding Certificate.”
• The seller is realizing zero profit.
• The US or a division thereof is acquiring the property.

MortgageDepot is experienced in facilitating the acquisition of a loan for the purchase of the foreign owned real property. If you are interested in a loan to acquire this type of property, contact MortgageDepot today!