Effective February 16, 2016, recent changes to the Foreign Investment in Real Property Tax Act (“FIRPTA”) will require many buyers to withhold 15% of the purchase price when purchasing interests in real property from foreign sellers.
For those of you who don’t know, FIRPTA is a federal act requiring “foreign persons” to pay income tax on the amount realized from selling an interest in U.S. real property. When someone buys an interest in U.S. real property from a foreign person, FIRPTA requires the buyer to withhold a certain percentage of the purchase price to ensure the Internal Revenue Service (“IRS”) receives its share of taxes from the transfer. While the current laws and regulations require a buyer to withhold 10% in most instances, starting February 16, 2016, FIRPTA will require many buyers to withhold 15% of the amount realized by the foreign seller.
In the residential real estate market, the effect of this FIRPTA withholding rate increase is limited by two exemptions. The first exemption currently exists, while the second will come into effect with the legislative amendment. Currently, if a buyer purchases real property with the intent to use it as the buyer’s residence, and the foreign seller realizes …read more
Source:: Legal Scoop