In the year 1980, Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA). The law can be found at 26 U.S.C.S. §1445. Briefly stated, the law provides that if a seller of real property is a "foreign person," the buyer must withhold a tax equal to 10% of the gross purchase price, unless an exemption applies under the law.
Who Is Covered By The Law?
A "foreign person" is a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. A resident alien is not considered a foreign person under the law.
The law sets forth numerous exemptions. A transaction is exempt if:
In connection with any real estate sale, it would be prudent for the buyer and the seller to make a specific agreement with regard to FIRPTA compliance. The expertise of a real estate attorney may be extremely beneficial in this regard.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.