Page 16 - Southern California Top Requested Flyers

Looking Into the

FIRPTA

Withholding Rule

FIRPTA Withholding Rule
FIR PT A Withholding R ule
PROPERTY AMOUNT REALIZED WITHHOLDING RATE
Under the Foreign Investment in Real Property Tax Act of 1980
(FIRPTA), a foreign person who sells a real property interest located
Not acquired to be in the U.S. is subject to a tax withholding at disposition. This regulation
buyer’s residence Any amount Fifteen Percent (15%) requires the buyer in such a transaction to withhold 10-15 percent
of the “amount realized” from the sale and remit it to the Internal
Up to $300,000 None (0%) Revenue Service (IRS) unless one or more exemptions apply to the
Acquired to be Over $300,000 Ten Percent (10%) seller or the transaction.
buyer’s residence and up to $1,000,000 Although the requirement to withhold and remit funds to the IRS

Over $1,000,000 Fifteen Percent (15%) falls on the buyer, typically the closing agent does withhold and
remit funds or prepare exemption affidavit forms to be delivered
to the IRS at the time of closing. The seller’s real estate agent plays
an important role in encouraging the seller to consult with their tax professional early in the transaction process to address any potential issues that may delay
their closing. Some tax professionals may recommend submitting an early tax return application for any excess withholding. This is particularly important as the
IRS has reported that refunds filed after withholding may take up to 12 months to process.

If a foreign person is selling a U.S. real property interest, a withholding is required as noted above, unless one or more of the following exceptions apply
(this is not a complete list of exceptions):
• Buyer acquires the real property as a personal residence and sales price not more than $300,000
• Seller provides Non-Foreign Affidavit
• Seller provides a Withholding Certificate from the IRS which excuses the withholding
• The amount realized by the seller is zero
• The property is acquired by the United States, a U.S. state or possession, a political subdivision, or the District of Columbia

FIRPTA calculations are
available on ortc.com\netsheet
04/2021 | © 2021 Old Republic Title | OR1396-DI
Old Republic Title is providing this information as a
free client service and makes no warranties or
representations as to its accuracy.
This content is provided solely for informational and
educational purposes and does not purport to offer
tax advice or legal advice of any kind. A complete
understanding of FIRPTA is critical to determining
thebuyer’s tax withholding and reporting obligations.
Questions concerning the applicability of the
provisions of any state or federal tax legislation
should be directed to a licensed and qualified
tax professional.