Change in FIRPTA Withholding from 10% to 15%

Change in FIRPTA Withholding from 10% to 15%

Under the Foreign Investment in Real Property Tax Act (“FIRPTA”) the sale of United States real property owned by a non-resident alien is now subject to 15% withholding (10% for dispositions before February 17, 2016).

Why a withholding? To prevent a non-resident alien from taking the sales proceeds on the sale of the United States property back to their home country without paying income tax on the proceeds.

What is the procedure? At closing, the title company pays from the seller’s proceeds the 15% withholding to the IRS. The non-resident taxpayer then files a United States tax return, and the 15% will be a credit on that tax return for any tax owed. If the taxpayer owes no tax, the 15% withholding payment will be refunded to the non-resident taxpayer.

Note: There are several exceptions to the 15% withholding requirement. The primary exception is that homes that sell for less than $300,000 are not subject to any withholding requirement if the buyer will use the home as a primary residence.