What is a "FIRPTA" and Why Do I Need One at Closing?

Posted by Haleigh Haffner Mulhern | Apr 25, 2023 | 0 Comments

The Foreign Investment in Real Property Act (FIRPTA) is a law that affects foreign investment in the United States real estate market. It was passed by Congress in 1980 and is designed to ensure that foreign sellers of U.S. real property pay their fair share of taxes.

Under FIRPTA, a foreign seller of U.S. real property is required to pay a withholding tax on the sale proceeds. This withholding tax is typically 15% of the gross sale price, although it can be lower in some cases. The buyer of the property is responsible for withholding the tax and remitting it to the IRS.

The purpose of the withholding tax is to ensure that foreign sellers pay any taxes they owe on the sale of U.S. real property. Since foreign sellers are not subject to U.S. income tax, there is a risk that they could sell a property and then leave the country without paying any taxes on the sale. The withholding tax helps to mitigate this risk and ensure that the IRS receives the tax revenue it is owed.

It's worth noting that not all foreign sellers are subject to FIRPTA. For example, foreign individuals who sell a U.S. property that is their primary residence may be exempt from the withholding tax. Additionally, certain types of entities, such as foreign governments and charities, may be exempt from FIRPTA withholding.

If you are involved in a real estate transaction with a foreign seller, it's important to be aware of FIRPTA and its requirements. As the buyer, you will be responsible for withholding the appropriate amount of tax and remitting it to the IRS. Failure to comply with FIRPTA can result in penalties and other consequences.

The attorneys at Haffner Law will determine whether a FIRPTA is needed prior to closing, and be sure one is provided if so. Call us today to discuss your real estate transaction.

About the Author

Haleigh Haffner Mulhern

Haleigh Haffner is a graduate of Clemson University with a Bachelor's degree in Modern Languages. She graduated from Loyola University Chicago School of Law with a Juris Doctor and a certificate in Public Interest Law. Haleigh was sworn in to the Illinois Bar in January 2021. While at Loyola, Hal...


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