Foreign Investment in Real Property Tax Act


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Foreign Investment in Real Property Tax Act (FIRPTA)

A federal law designed to assist in the collection of income taxes when foreign owners and investors sell real property or shares in entities that own real property.

Purchasers are required to withhold 10 percent of the sales price unless either of the following occurs:

1. The IRS is asked to calculate the exact taxes that would be due, in which case that amount will be withheld.

2. The purchaser will use the property as a residence and the selling price is less than $300,000.

Purchasers must report the withholding on IRS Form 8288 or 8288-A and must report and pay over the money within 20 days after purchase. If purchasers do not withhold, they may be liable for the taxes themselves.Almost all real estate closings today require the seller's signature on what's called the FIRPTA affidavit, stating that the seller is not a foreign person. (For more information, see Publication 515,“Withholding of Tax on Nonresident Aliens and Foreign Entities,”available at the IRS Web site,www.irs.gov.)

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It eliminates certain unfavorable tax results previously required under the Foreign Investment in Real Property Tax Act of 1980.
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real property by a foreigner is subject to withholding under the Foreign Investment in Real Property Tax Act ("FIRPTA').
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