How much is the FIRPTA withholding requirement? Let’s find out today.
Hello everyone, and welcome back to our channel! I’m Robert Acevedo, an IRS Enrolled Agent, and today we’ll discuss an important topic: FIRPTA withholding for foreign investors.
So, what is FIRPTA? FIRPTA stands for the Foreign Investment in Real Property Tax Act. This U.S. tax law mandates that foreign sellers pay taxes on capital gains from U.S. real estate sales.
But how much tax is actually required? When a foreign investor sells real estate in the U.S., the IRS requires the buyer to withhold a portion of the sale proceeds upfront to cover the tax obligation. Typically, the FIRPTA withholding is set at 15% of the gross sales price. However, this can vary depending on certain factors.
For example, if you purchase a property for $300,000, a 15% withholding would amount to $45,000. This amount is withheld at closing and submitted to the IRS by the buyer or title company. It’s important to remember that this withholding is not the final tax liability for the seller; it’s simply an upfront requirement.
Fortunately, there are exceptions to this rule. If the sales price is under $300,000 and the buyer intends to occupy the property for at least two years, no withholding is necessary. In this case, the withholding percentage would be zero.
If the sales price is above $300,000 but under $1 million, and the buyer also plans to live in the home for a minimum of two years, FIRPTA still applies, but the withholding rate would be reduced to 10%.
To determine which exceptions may apply to your situation, it’s advisable to consult with a tax professional like myself. If you’re a foreign seller with an upcoming real estate transaction and are unsure whether FIRPTA applies to you, it’s essential to stay informed and seek guidance from experts to understand how FIRPTA might impact your sale. Being knowledgeable about FIRPTA rules can help you comply with IRS requirements and potentially qualify for a refund.
If you found this article helpful, please share with friends. If you have any questions regarding FIRPTA, feel free to leave them in the comments—we’d love to hear from you!