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Foreign Investment in Real Property Tax Act - (FIRPTA)

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Real Estate Agent with Sage Smith Realty

Foreign Investment in Real Property Tax Act - (FIRPTA)

I would like to preface this post by letting everyone know that I am not an attorney or certified accountant. Please consult with an attorney or certified public accountant (CPA) before making any decisions regarding the Foreign Investment in Real Property Tax Act (FIRPTA).

As a Realtor in Yuma, AZ a good portion of my clientèle originate from Canada and have never heard of the Foreign Investment in Real Property Tax Act (FIRPTA).  I never give advice on tax codes and ramifications, but it is my job to educate my clients on the topic and at least let them know that it exists.

IRS Taxation

The Foreign Investment in Real Property Tax Act (FIRPTA) authorizes the United States to tax foreign persons on the sale and exchange of US real property interests including property located in the US Virgin Islands.  This includes (but is not limited to) liquidation, redemption, gift, transfers, etc...  FIRPTA also applies to the sale of shares in certain U.S. corporations that are considered U.S. real property holding corporations.  It is the responsibility of the person(s) purchasing the US real property (buyer / transferee) to withold 10 percent of the amount realized.  The purpose of the Foreign Investment in Real Property Tax Act (FIRPTA) is to ensure the taxation on the gains realized on the sale of US real property. 

Don't worry about getting to involved with this.  The settlement / escrow officer has handled the withholding on every FIRPTA transaction I have been involved with.  Also, there is a very good chance that an exemption may apply.  There are several exemptions, but the most common is listed below:

EXEMPTION: The buyer / transferee acquires the property for use as a home and the amount realized (generally sales price) is not more than $300,000. The buyer or a member of the buyers family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.

Remember! The purpose of this post is not to give advise onthe Foreign Investment in Real Property Tax Act (FIRPTA), but rather to bring awareness that it exists because if the seller / transferor is a foreign person and you fail to withhold, you as an agent or buyer may be held liable for the tax.  Please refer to the following link for more detail pertaining to FIRPTA :

http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html

 

Carol West
Carol West Real Estate, LLC - Hillsboro, OR
Real Estate Agent, Hillsboro, Beaverton, Portland

Thanks for the information on this important aspect of title and closing for our foreign clients!

Aug 18, 2010 09:01 AM