What is FIRPTA?

Thursday September 10, 2020

What is FIRPTA?
What is FIRPTA?

FIRPTA stands for the Foreign Investment Real Property Tax Act. It requires foreign persons in the United States to pay income tax on dispositions (sales) of real property. Why do we have FIRPTA? Where domestic citizens get capital gains money from their income tax, foreign citizens only get taxed on certain items. These taxed items are rarely capital gains items like real estate. FIRPTA allows the government to get its proper share when a foreigner sells real estate. Withholding Tax Tax withholding occurs when the buyer gives some fraction of the sales price to the federal government. In the case of FIRPTA, buyers are required to withhold 10% of the sales price for the IRS. If the taxes are lower than that, the seller will get refunded the difference. Some states require an additional withholding to pay to the state, regardless of if FIRPTA applies or not. This is just something to keep in mind when selling your home in general. Exemptions It is possible to be exempt from this law. You may be exempt in the following cases:

  • The seller proves that they are not a foreign citizen.
  • The buyer can get a withholding certificate that proves to the IRS that they are exempt from the withholding.
  • The seller realizes 0% interest on the sale.
  • The sales price is less than $300,000 and the buyer plans to live in the home for at least half of the first 2 years after the transfer.
Further Reading: https://www.firstam.com/title/az/resources/foreign-transaction-resource/firpta-frequently-asked-questions.html https://www.irs.gov/individuals/international-taxpayers/exceptions-from-firpta-withholding Was this article helpful? Check these out: Things to Consider Before Making an Offer on Your Dream Home The Pros & Cons of Buying a New Construction Home Tips for First-Time Home Buyers How to Invest in Real Estate the Right Way To get in touch with one of the top real estate agents in Las Vegas, check out Our Team, or feel free to Contact Us and we will help you find the right fit.

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  • Craig Tann Broker
    huntington & ellis, A Real Estate Agency
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