The Foreign Investment in Real Property Tax Act and what’s required

March 01, 2024

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires buyers in certain transactions involving foreign sellers to withhold a percentage of the amount realized (usually the sales price) by the foreign seller to be paid to the IRS for federal taxes.

If the property’s sales price is more than $1,000,000, 15% must generally be withheld and paid to the IRS.

In transactions where the property’s sales price is between $300,001 and $1,000,000 and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, 10% of the sales price must generally be withheld and paid to the IRS.

If a property’s sales price is $300,000 or less and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, nothing needs to be withheld and no reporting to the IRS is required.

A buyer who is required to withhold funds to be paid to the IRS must use IRS Form 8288 and IRS Form 8288-A to report and pay the tax. In these situations, any necessary forms and withheld funds must be submitted to the IRS within 20 days of the disposition, or sale, date or penalties will be assessed. If the parties have any questions regarding FIRPTA-affected transactions they should speak with a CPA or an attorney experienced with FIRPTA. Real estate license holders are not allowed to provide legal or tax advice regarding FIRPTA or any other tax or legal matter.

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