In general, a non-U.S. person owning real property in the United States will be subject to the Foreign Investor in Real Property Act (FIRPTA) when disposing of U.S. real property.
United States tax law requires the payment of income tax on certain dispositions of U.S. real property. Taxable gain or loss on the disposition of real property will be reported by U.S. persons on their annual tax return, and if there is taxable gain on the disposition, that tax is paid when the return is due. When a non-U.S. person disposes of U.S. real property, the Internal Revenue Service (IRS) requires that a certain percentage (currently 15% as of 2018) of the sale proceeds be withheld at the time of the sale. The IRS then determines the tax on the disposition and collects the tax from the withheld amount. If the determined tax is less than the withheld amount, the balance of the withheld funds is “refunded” to the seller. As such, FIRPTA is not an “additional” tax, but simply a withholding mechanism.
The requirements under FIRPTA are at times confusing and lengthy, and a variety of forms must be completed when FIRPTA withholding applies. Our tax and real estate attorneys at Wood, Buckel & Carmichael are highly experienced at serving international clients with interests in U.S. real property. Our attorneys are ready to advise you and help you determine if FIRPTA withholding applies to your situation. For more information, contact one of our experienced tax attorneys.