What is FIRPTA and how do I avoid it?

What is FIRPTA?

FIRPTA stands for Foreign Investment in Real Property Tax Act and it is the Federal law governing the taxation & withholding by foreign persons selling US real estate. 

Under FIRPTA, the buyer is required to withhold either 10% or 15% of the gross sales price from proceeds as a “deposit” due to IRS within 20 days after closing; when purchasing from a foreign seller (certain exceptions apply).

New for February 16, 2016 - If the total sale is more than $1,000,000 OR the property is not being acquired as a residence, the buyer is required to withhold 15% of the gross sales price. 

A “foreign person” is defined under FIRPTA as a:

  • nonresident alien individual,
  • foreign corporation,
  • partnership,
  • trust or
  • foreign estate.

How to Avoid FIRPTA?

Affidavit can be executed by an “eligible” buyer.

Withholding Certificate may allow lesser amount withheld at closing.

FIRPTA Exemptions

No withholding required under FIRPTA if:

  • The sales price is $300,000 or less, and
  • The buyer signs affidavit at or before closing stating they intend to use property for personal purposes for at least 50% of time property occupied for the each of the first two 12 month periods immediately after closing.

Withholding Certificate

  • The amount of tax required to be withheld under FIRPTA cannot exceed total tax liability. A seller or buyer may apply for a withholding certificate (IRS Form 8288-B) allowing less than 10% withheld or installment payments.
  • 90 days to issue from receipt of application

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