Foreign Investment in Actual Property Tax Act

In 1980, Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA), 26 U.S.C.S. 1445. The law provides that if a seller of actual property can be a "foreign person," the buyer ought to withhold a tax equal to 10% of the gross obtain price, unless an exemption applies under the law.

A "foreign person" is really a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. A resident alien isn't regarded as a foreign person under the law.

Exemptions to FIRPTA

There are quite a few exemptions to FIRPTA. A transaction is exempt if:

• the seller of actual property furnishes a non-foreign affidavit stating under penalty of perjury that the seller isn't a foreign person


• the transaction involves the transfer of a property acquired for use as the buyer's residence along with the quantity realized is not greater than $300,000


• the seller obtains a "qualifying statement" from the Internal Revenue Service stating that no withholding will be required

Obtaining Legal Counsel

In connection with any real estate sale involving a foreign investor the buyer and the seller ought to take into account making a distinct agreement with regard to FIRPTA compliance. The expertise of a actual estate attorney may perhaps be valuable to steer clear of complications that may well otherwise arise at the last minute and delay the closing.  As always, when dealing with the Internal Revenue Service, it is important to proceed with an abundance of caution, as "an ounce of prevention is worth a pound of cure."