FIRPTA – Taxing Foreign Nationals.
Taxes are just like monsters that eat up all the profits in the sale of a property, aren’t they? Get to know your enemy.
FIRPTA is the acronym for Foreign Investment in Real Property Tax Act of 1980, the law that imposes income tax on foreign persons disposing of United States real estate property. Tax is imposed at regular tax rates on capital gains on any property sale, but residents make this adjustment with the government as part of their annual declarations, based on their own personal rates, value of the property, time they lived in the residence, and improvements.
To ensure the retention of these taxes from foreigners, the American government retains 15% of the property sale value even before all the amounts are disbursed at the time of the closing. This can be reduced based on certain provisions. It is one of the responsibilities of the buyer during the purchase process to verify if the seller is a foreign person or not. There are strict penalties for the buyer that does not notify the government of this tax retention.
Some properties purchased as a legal entity or domestic corporation might obtain a valid certificate of non-foreign status even if the owner is not American. An attorney will establish the correct structure not only to minimize the taxable contributions, but other interests as well, and the title company verifies seller’s information prior to the closing, to ensure the FIRPTA retention.
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