Foreign Investment in Real Property Tax Act (FIRPTA) withholding is the withholding of tax on dispositions of United States real property interests. FIRPTA applies to foreign individuals who intend to sell a real property located in the United States. FIRPTA was enacted in 1980, initially as a response by Congress to concerns about increasing foreign ownership of farmland in the United States. The major purpose of FIRPTA was to establish equity of tax treatment in U.S. real property between foreign and domestic investors. Here are important considerations to know about FIRPTA to ensure compliance come tax time from the dedicated team at Orlando based CPA Accounting & Tax Services.

Secure a Tax Advisor BEFORE Selling a Property

It is best to secure a tax advisor before the sale of real property owned by foreign individuals or entities. If you do this before, you calculate your tax liability and secure the tax calculation rather than at the time of tax preparation. A professional advisor is able to apply for a tax exemption certificate. Due to COVID delays in 2020 many recipients of refunds have had to wait longer periods of time for their refund. Any sale of a U.S. real property interest by a foreign person is subject to FIRPTA income tax withholding. Consulting a trusted expert like CPA Accounting & Tax Services can ensure that taxes are properly withheld and that you are in compliance with the Internal Revenue Service (IRS) rules regarding FIRPTA.

Know the FIPTA Withholding Rate

In February 2016, the FIRPTA withholding tax rate increased to 15% from the previous rate of 10%. The tax is calculated based on the gross sales price with no consideration for the actual gain or loss. As a result, even on a loss transaction, foreign real property sellers will potentially still have a 15% tax withholding from the gross proceeds.

Are There Exceptions?

There are exceptions from the FIRPTA IRS withholding rules. Here are some common exceptions. For a full list, click here to visit the IRS website.

1 – If the gross sales price is $300,000 or less and the purchaser intends to use the property as a residence, there is no withholding required.

2 – The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations.

3 – The disposition is of an interest in a domestic corporation and that corporation furnishes you a certification stating, under penalties of perjury, that the interest is not a U.S. real property interest. In most cases, the corporation can make this certification only if either of the following is true.

Navigating the complexities of FIRPTA can be complicated. Contact the professionals at  CPA Accounting & Tax Services to help guide you through tax season and beyond. We specialize in Business Accounting Services, Individual Tax Services, International Tax Services and Tax Resolution Services. We have offices in Orlando, Florida and service clients worldwide. Find out how we can serve all of your accounting needs by contacting us today: