New Tax News for 2016 Regarding FIRPTA

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FIRPTA increases from 10% to 15%.

Currently if a foreign person sells United States real estate the buyer is required to withhold 10% of the gross sales price and remit this to the IRS. However pursuant to the Protecting Americans from Tax Hikes Act of 2015 closings as of February 16, 2016 the FIRPTA will increase in most instances from 10 to 15%.

Congress created FIRPTA based on reports that foreign investors were purchasing U.S. real estate and then selling it at a profit without paying any U.S. taxes. Consequently, FIRPTA created a requirement forcing buyers to withhold 10 percent of the purchase price and remit it to the Internal Revenue Service at the time of closing, subject to a few exceptions.

The settlement agent is the party that withholds and remits the funds to the IRS, but the buyer is legally responsible.

A few exceptions are noted in the below. First is that at a sales price of $300,000 or less and buyer acquires as a principal residence there is no withholding.  Second is a sales price of $300,000 to $1,000,000 and the buyer acquires as a principal residence the withholding is 10%.

Other exceptions are:

No withholding is required under the following additional circumstances:

•    Seller provides Non-Foreign Affidavit

•    Seller  provides a Withholding Certificate from the IRS which excuses the withholding

•    The amount realized by the seller is zero

•    The property is acquired by the United States or a political subdivision thereof