Foreign Seller? FIRPTA Witholding Tax Goes To 15% For High End Homes

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international home selling

FIRPTA, the Foreign Investment in Real Estate Property Tax Act was created by Congress in 1980 to avoid foreign home sellers from making a profit on their U.S. home without paying U.S. taxes. According to FIRPTA, 10% of the sale price would be held for taxes. Usually, the settlement agent is the party that withholds and remits the funds to the IRS, but the buyer is legally responsible.

Here are the new rules according to the National Association of REALTORS®:

  • $300,000: Foreign sellers currently pay no FIRPTA tax, and this doesn't change under the new rule, providing the property will be used as a residence
  • $300,000-$1 million: The current 10 percent FIRPTA tax does not change under the new rule, providing the property will be used as a residence
  • $1 million-plus: The FIRPTA tax goes up from the current 10 percent to 15 percent after Feb. 16. In this $1 million-plus category, it doesn't matter whether the property will be used as a residence or not

The new FIRPTA rules will make U.S. commercial property more attractive to foreign investors, according to Ralph W. Holmen, associate general counsel for the National Association of Realtors® (NAR). The law doubles the maximum amount of stock ownership a foreign investor may have in a U.S. publicly-traded real estate investment trust (REIT), bumping it up from the current 5 percent to 10 percent. It also permits certain foreign pension funds to invest in real estate investment trusts (REITs) without having FIRPTA treatment apply.

This post was previously published as a January 2016 post on ActiveRain

 

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