The Foreign Investment in Real Property Tax Act

Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA). The law can be found at 26 U.S.C.S. §1445. Briefly stated, the law provides that if a seller of real property is a "foreign person," the buyer must withhold a tax equal to 10% of the gross purchase price, unless an exemption applies under the law.

Who Is Covered by the Law?

A "foreign person" is a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. A resident alien is not considered a foreign person under the law.

Exemptions

The law sets forth numerous exemptions. A transaction is exempt if:

• the seller furnishes a non-foreign affidavit stating under penalty of perjury that the seller is not a foreign person;
  
• the transaction involves the transfer of a property acquired for use as the buyer's residence and the amount realized does not exceed $300,000; or
  
• the seller obtains a "qualifying statement" from the Internal Revenue Service stating that no withholding is required.

Safeguards

In connection with any real estate sale, it would be prudent for the buyer and the seller to make a specific agreement with regard to FIRPTA compliance. The expertise of a real estate attorney may be extremely beneficial in this regard.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.