The Florida Property Shop

Sell Your Property

Experience Beyond The Border | FIRPTA & IRS

Sarah Gholami and The Florida Property Shop team have experience buying and selling properties for international clients.  Sarah can help you navigate all the complexities of foreign real estate investing including the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

Foreign persons are liable for U.S. income tax on a sale or other taxable disposition of U.S. real property. U.S. income tax treaties generally allow for such U.S. taxation of a foreign person’s taxable disposition of U.S. real property (such as the 2006 U.S. Model Income Tax Convention, Article 6). In order to ensure payment of tax on such real property dispositions by foreign persons, a withholding tax is imposed on specified withholding agents involved in the transaction (for example, the purchaser). The general rules of this withholding mechanism are covered in this Practice Unit.

Under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), a foreign person who disposes of a U.S. real property interest is subject to the income tax withholding on the transaction. FIRPTA gives the United States the authority to tax foreign persons on the disposition of U.S. real property interests. For FIRPTA purposes, a disposition means a “disposition” for any purpose of the Internal Revenue Code (IRC). Therefore, dispositions include but are not limited to sales or exchanges, liquidations, redemptions, gifts, transfers, etc.

Persons, whether U.S. or foreign, purchasing U.S. real property interests from foreign persons, certain purchasers’ agents, and settlement officers are generally required to withhold 10 percent of the amount realized on dispositions prior to February 17, 2016, and withhold 15 percent on dispositions after February 16, 2016. The general rate has been increased from 10 percent to 15 percent due to the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) which was signed into law on December 18, 2015. In most transactions, the buyer or purchaser is the withholding agent. The buyer is required to determine if the seller is a foreign person or not. If the buyer fails to withhold when the seller is a foreign person, the buyer may be liable for the tax required to be withheld.