When the seller is a foreign person, FIRPTA usually makes the buyer the one who withholds. The IRS explains the rate, the duty and the ways it can change.
How FIRPTA works
The disposition of a U.S. real property interest by a foreign person is subject to FIRPTA income tax withholding. In most cases, the buyer is the withholding agent and must find out if the seller is a foreign person. If the seller is a foreign person and the buyer doesn’t withhold, the buyer may be held liable for the tax.
The rate
The rate of withholding generally is 15% of the total amount realized. The amount realized is the cash paid or to be paid, the fair market value of other property transferred, and the amount of any liability assumed by the buyer or to which the property is subject.
What can change it
The IRS says withholding is generally not required when the seller gives the buyer a certification, under penalties of perjury, that the seller is not a foreign person, containing name, U.S. taxpayer identification number and home address. It’s also generally not required when the buyer receives a withholding certificate from the IRS that excuses withholding. Notification requirements must still be met.
Who to ask
A closing attorney and a tax adviser can say how it applies to a specific sale.
Questions
Common questions
Who withholds FIRPTA tax?
The IRS says that in most cases the buyer (transferee) is the withholding agent.
How much is FIRPTA withholding?
The IRS says the rate of withholding generally is 15% of the total amount realized.
When is FIRPTA withholding not required?
The IRS says it is generally not required when the seller certifies they are not a foreign person, when the IRS issues a withholding certificate that excuses it, or in other listed situations such as a buyer's residence purchase at $300,000 or less. Notification requirements must still be met.
Sources
- IRS: 'Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 15% (10% for dispositions before Feb. 17, 2016) of the amount realized on the disposition.' 'The rate of withholding generally is 15%.'
- IRS: FIRPTA withholding is generally not required when 'the seller (transferor) gives the transferee a certification stating, under penalties of perjury, that the transferor is not a foreign person. The certification should contain the transferor's name, U.S. taxpayer identification number, and home address.'
Written by Diana Yeji Kim — REALTOR® at eXp Realty, serving Greater Boston in English, Korean, and Japanese.
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