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FIRPTA: The Tax Risk in Buying Real Property in the US from Foreigners

Updated: Jul 22, 2022

Be careful when purchasing real estate in the United States from a foreign owner.

The Foreign Investment in Real Property Tax Act of 1980, also known as FIRPTA, may apply to you.

FIRPTA is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate.

BUT the BUYER (not the foreign seller) may be required to withhold the 10% U.S. income tax. The tax is 10% of the amount "realized" from the sale.

The amount "realized" is normally the full purchase price.

If the law applies to your purchase, then within 20 days of the sale, you are required to file with the IRS, and, with the form, the buyer pays the 10% withholding.

If you do not withhold the required amount, file the form on time, and submit the withholding, penalties do apply.

There are some exceptions:

FIRPTA does not apply if you are buying a residence for $300,000 or less.

FIRPTA does not apply if the property is not a U.S. real property interest.

Please contact us at Middle Market Advisory LLC if you require assistance with tax strategy:

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