What is the Foreign Investment in Real Property Tax Act (FIRPTA)?
The Foreign Investment in Real Property Tax Act (FIRPTA) is a tax imposed on the amount realized from the sale of real property owned by a foreign seller.
There are exceptions to this tax-withholding requirement. Given the complexities of tax laws, the buyer and seller should consult with a tax specialist to determine the exact withholding amount or to determine if an exemption to the FIRPTA requirement applies.
FIRPTA applies when the seller is a foreign person, as defined by FIRPTA. However, a foreign buyer may want to consult with a tax professional if that buyer's intent is to sell the property, as then FIRPTA may apply.
As there are several exemptions available, foreign sellers are wise to speak to their tax professional as early in the sales process as possible to know their options to avoid money being held in escrow.