If you are a foreign individual and you are selling your property, or if you are a buyer purchasing property from a foreign seller, then you are likely subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).
In the past, settlement agents were required to withhold 10% of the sale price for the IRS. However, that figure just increased by 50%. As a result of the February 16, 2016 FIRPTA witholding rate increase, settlement agents are now holding back 15% of the sale price. The duty to withhold this amount is actually on the U.S. buyer, not the settlement agent.
“The 15% rate isn’t necessarily the amount owed.”
The IRS requires foreign persons to pay U.S. income tax on the gains they make from selling U.S. real estate. So the 15% rate isn’t necessarily the amount of tax owed. Rather it is a sort of safety net for the IRS to ensure they get paid. The actual amount owed (tax on gain) to the IRS could be more or could less than the 15% withheld.
There are also many exemptions to the new FIRPTA. Speak to an experienced closing agent or real estate attorney to see if you qualify.
To ensure you comply with these new guidelines or for more information on real estate transactions, contact Attorney Francis Boyer today.