A Notice to Agents, Buyers & Sellers
A disposition of real property by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1908 (FIRPTA) income tax withholding. FIRPTA authorizes the U.S. to tax foreign persons on transfers of real property. Buyers purchasing real property from foreign persons are required to deduct and withhold a tax on the total amount realized by the foreign person on the sale. Below is the breakdown of the withholding amounts under FIRPTA:
– 0% withholding on the transfer of property to an individual transferee where the transferee or certain members of the transferee’s family intend to use the property as a residence for at least ½ the time the property will be used by anyone as a residence during the first two 12-month periods following the transfer AND the amount realized is $300,000 or less.
– 10% withholding for transactions closing on or after February 16, 2016, where the real property will be used by the transferee as a residence and the amount realized is greater than $300,000 but not more than $1,000,00.
– 15% withholding on all other transfers by a foreign person. The requirement to withhold rests with the transferee/buyer. If the seller is a foreign person and the buyer fails to withhold, they may be liable for the tax. It is recommended that both parties meet with a qualified CPA as early as possible to ensure there are no delays in closing. See FIRPTA Withholding: https://www.irs.gov/individuals/international-taxpayers/firpta-withholding
By: Alicia Schaub
Alicia Schaub is Access Title Agency’s on-staff attorney for the Traverse City and Suttons Bay, Michigan offices. She graduated cum laude from Western Michigan University Cooley Law School and is licensed to practice law in the State of Michigan. Contact info: email@example.com or (231) 539-1203.