Foreign Investment in Real Estate

Tax Increase for Sales Exceeding $1 million

The Foreign Investment in Real Property Tax Act ("FIRPTA") provides that the disposition of a U.S. real property interest by a foreign person for the purposes of U.S. income taxation is subject to income tax withholding. Under FIRPTA, the buyer is responsible for determining if the seller is a foreign person for the purposes of U.S. income taxation and if the buyer fails to do so, the buyer could be liable for the tax.  FIRPTA withholding is imposed at a rate of 10% on the amount realized from the sale (i.e. the purchase price). Changes to FIRPTA, effective February 17, 2016, increase the amount of the tax to 15% for sales where the amount realized from the sale (i.e. the purchase price) exceeds $1 million. The change applies to closings that occur after February 16, 2016. Happy Investing!