FIRPTA Withholding - CPA Services

The U.S. Congress passed the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980 to tax foreigner’s profits from the income resulting from the sale of any real estate or other real property held in the United States. If you’re a foreign national and you sell your interest in a property in the United States, the FIRPTA tax subjects you to a10 or 15 percent (depending on the sales price ) withholding tax of the value of the property, even if you sold it at a loss. You must deposit the withholding amount with the U.S. Internal Revenue Service (IRS) within 20 days of the sale closing. If the previous exception for personal residences (where the purchase price does not exceed $300,000 － in which case no withholding is required) does not apply, the 10% withholding rate is retained so long as the purchase price does not exceed $1 million. If the price is higher than $1 million, the new 15% rate will apply. The new rate will apply to sales on or after February 17, 2016. The IRS withholds the tax as a deposit until you file your U.S. income tax returns, which must be by the following April 15. If the amount withheld is greater than the tax you owe, they refund the difference to you. If the amount withheld is less than the actual tax, you must pay the balance when you file your return. Like much of the U.S. tax code, this law can be confusing and open to some interpretation. As there are some exceptions to FIRPTA, it is recommended that you discuss details of your particular case/situation with Cao & Associates / CPA in order to determine the exact amount of this tax that would be due on your transaction.