Real Estate Buyers, don’t get trapped into paying FIRPTA tax!
The Foreign Investment in U.S. Real Property Tax Act of 1980 (“FIRPTA”) was enacted to ensure that foreign investors are taxed on the gains from the disposition of their U.S. real property investments. So why, would the Real Estate buyers be concerned?
If you are the buyer (transferee) you must find out if the seller (transferor) is a foreign person. Persons purchasing U.S. real property from a foreigner are required to withhold 10 percent (or other amount) of the amount realized on the disposition. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be HELD LIABLE FOR PAYING THE TAX equal to 10% (or other amount) of the total amount realized by the foreign person on the disposition (sale or exchange, liquidation, redemption, gift, transfers, etc.). The amount realized is generally the amount paid for the property and is the sum of
(1) The cash paid, or to be paid
(2) The fair market value of other property transferred, or to be transferred, and
(3) The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.
A buyer of real estate from a foreign national is required to report the purchase/sale to the IRS on Forms 8288 and 8288-A, and pay the applicable 10% tax withholding amount by no later than the twentieth day after the sale.
Whether or not FIRPTA applies is dependent upon your unique situation. For more information and common exceptions from FIRPA withholding, please contact your Trusted Tax Advisor at Capital Protection Alliance at http://capitalproalliance.com/helpstep1_real_estate/