FIRPTA Tax Relief for Foreign Investors

Introduction:

The Foreign Investment in Real Property Tax Act (FIRPTA) governs the taxation of foreign individuals and entities when selling U.S. real estate. Its main purpose is to ensure the U.S. government receives its due share of taxes from the gain on such sales. However, there are certain reliefs available that can benefit foreign sellers. This page provides an overview.

 

Who is Considered a Foreign Investor?

Any individual or entity that's not a U.S. citizen, nor a resident alien, falls under FIRPTA when dealing with real estate transactions in the United States.

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Primary Tax Implications:

Foreign investors are subject to U.S. tax on the sale of their real estate. Typically, a certain percentage of the gross sales price is withheld as tax.

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FIRPTA Tax Relief:

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• Eligibility: Not all sales are subject to withholding. Specific exemptions may apply depending on the type and value of the transaction.

• Withholding Rates: Standard rates apply but can be reduced or eliminated under qualifying circumstances.

• Procedure for Claiming Relief: Foreign sellers may apply to the IRS for a reduced withholding certificate, provided certain conditions are met.

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Frequently Asked Questions (FAQ)

Q: Can the buyer be held responsible for the withholding?

A: Yes, if the proper amount isn't withheld, the buyer could be held liable.

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Q: How soon after the sale are the withheld funds remitted to the IRS?

A: Typically within 20 days of the transaction.