In 1980 the U.S. Congress passed the Foreign Investment in Real Property Tax Act (FIRPTA).  Prior to 1981, foreign owners, individual or corporate, were often exempt from the United States tax on the sale of U.S. real estate on the capital gains.  FIRPTA changed this by imposing a tax on foreign persons (or entities) at the regular tax rates for this type of taxpayer on the recognized gains from the sale of real estate assets.

As per this act, purchasers of real estate owned by foreign parties are required to withhold an amount equal to ten percent (10%) of the sales price if the seller is classified as a foreign person and the real property being purchased is either non-residential real estate starting with “dollar 1” or if the property is a residential property whose purchase price exceeds $300,000.00.  Non-residential real property included non-owner-occupied residential real estate.  A foreign person is a person who is both a non-resident and non-citizen.

A seller, who is classified as a foreign person, may apply to the Internal Revenue Service to reduce the ten-percent tax.  The IRS does routinely and quickly approve these applications.

As of February 17, 2016 the withholding requirements of FIRPTA have changed. Here are the new withholding requirements:

  1. If the buyer does not intend to occupy the premises, there is now a fifteen percent (15%) of the sales price withholding of proceeds from the seller.

  2. If the sales price is between $300,001.00 and $1,000,000.00 and the buyer intends to occupy the property, there is a 10% of the sales price withholding, but a 15% withholding if the buyer does not intend to occupy.

  3. If the sales price is $1,000,001.00 or more, then there is a 15% withholding on every transaction whether the buyer intends to occupy or not."


** Please consult a tax adviser about the withholding requirements of FIRPTA.  Mandatory withholding may apply.