How FIRPTA Affects Foreigners Selling U.S. Property
If you reside outside of the United States and are selling a property within the U.S., you may be subject to a 15% withholding from the sale proceeds of the home. This withholding is called FIRPTA - Foreign Investment in Real Estate Property Tax Act.
FIRPTA is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate. Under FIRPTA, if you sell your U.S. real estate as a foreign person, a withholding of 15% might be required from the amount realized from the sale. The amount realized is normally the purchase price.
Why FIRPTA? FIRPTA was created in order to prevent foreign investors from buying U.S. property and selling it for a profit, tax free. What Foreign Sellers Need to Know On February 17, 2016, new FIRPTA rules will take effect. Read more about the below here. “The law considers three levels of property purchases: A personal residence of $300,000 or less; a personal residence worth more than $300,000 but less than $1 million; and properties valued at $1 million or more:
• $300,000: Foreign sellers currently pay no FIRPTA tax, and this doesn't change under the new rule, providing the property will be used as a residence.
• $300,000-$1 million: The current 10 percent FIRPTA tax does not change under the new rule, providing the property will be used as a residence.
• $1 million-plus: The FIRPTA tax goes up from the current 10 percent to 15 percent after Feb. 16. In this $1 million-plus category, it doesn't matter whether the property will be used as a residence or not.
It has been my experience, as I’ve had the pleasure of working with a variety of foreign sellers, that FIRPTA is one of the items in the process of selling a home in the U.S. that is not well known. With the proper Realtor on your side, you can rest assured you will be well-informed of the steps of the selling process.
Please read the other blog posts I wrote with the needs in mind of foreigners listing and selling property in the U.S.
• A Foreigners Guide to Listing a U.S. Property
• A Foreigners Guide to Selling a U.S. Property