Buying Real Property From A Foreign Seller or Closing the Deal? Know the FIRPTA Rules So You Aren’t Liable for Failing to Withhold

FIRPTA, or the Foreign Investment in Real Property Tax Act, is part of the United States continued efforts to tax all income/gain connected to the United States. Real estate agents, escrow agents, and buyers should be aware of FIRPTA because it mandates income tax withholding and paying over to the IRS 15% of the sales price on the purchase of a U.S. real property interest from a foreign person under certain circumstances. 26 U.S.C. § 1445. In other words, buyers may not be able to pay all of the purchase price to the seller—some may have to be paid to the IRS. This can include situations where a foreign person (or entity) sells, exchanges, liquidates, redeems, gifts, or transfers in any other way a real property interest. The obligation is imposed on a buyer as well as a buyer’s agent and/or settlement/escrow officer.

We are here to help foreign investors, who make investments in U.S. real property, navigate the traps for the unwary with the following services

  • Structuring Investment in U.S. Real Estate: Legal, economic, and tax considerations that are influenced by the domicile of the foreign investor, investor type, property sector, holding period, and asset plan.
  • Reporting Assistance for Foreign Owners of U.S. Real Estate: Withholding and payment from effectively connected income, non-effectively connected income, branch profits tax, and tax on excess interest.
  • Planning Around Foreign Investment in Real Property Tax Act “FIRPTA”: Use of partnerships, corporations, LLCs, and REITs, both domestic and foreign, to legally avoid FIRPTA withholding while taking into consideration other tax consequences.
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Buying Real Property From A Foreign Seller or Closing the Deal? Know the FIRPTA Rules So You Aren’t Liable for Failing to Withhold.

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