What Happens To Non-Resident Aliens Under The New Tax Code Foreign Investment in Real Property Tax Act

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Foreign Investment in Real Property Tax Act

In 1980, Congress passed the Foreign Investment Property Tax Act (FIRPTA), 26 USCS 1445. The law requires that if the seller of the property is a “foreign person,” the buyer must withhold 10% of the property tax. gross purchase price, unless exempted by law.

“Foreign person”: a non-resident foreign individual, a foreign company not treated as a domestic company, or a foreign company, trust or estate. According to the law, a resident foreigner is not a foreigner.

Exceptions to FIRPTA

There are several exceptions to FIRPTA. The transaction is exempt if:

  • the seller of the property is not a foreigner makes an affidavit in which he declares under penalty of perjury that the seller is not a foreigner
  • the transaction involves the transfer of real estate acquired as the buyer’s residence and the amount realized does not exceed USD 300,000
  • the seller receives a “qualifying statement” from the Internal Revenue Service stating that no withholding will be required

Use of legal counsel

In any real estate sale involving a foreign investor, the buyer and seller should consider entering into a separate agreement regarding FIRPTA compliance. The expertise of a real estate attorney can help you avoid complications that would otherwise arise at the last minute and delay the closing. As always, it is important to exercise great care when dealing with the Internal Revenue Service, as “an ounce of prevention is worth a pound of cure.”

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