FIRPTA EXPLAINED:
FIRPTA, or the Foreign Investment in Real Property Tax Act, is a U.S. law that requires foreign sellers of U.S. real estate to pay U.S. taxes on the gains from the sale. Basically, if someone who isn’t a U.S. citizen or permanent resident sells property in the U.S., the IRS wants to make sure they pay taxes on that profit.
How It Works
- When a foreign owner sells property, the buyer must withhold 15% of the sale price (sometimes lower under certain conditions) and send it to the IRS.
- The seller then files a U.S. tax return to report the actual gain. If the withholding was more than owed, they get a refund; if less, they pay the balance.
Why It Matters
FIRPTA protects the U.S. tax system by ensuring foreign investors don’t avoid paying taxes on U.S. real estate sales. For buyers, it’s important because failing to withhold can make them personally responsible for the tax.
