U.S. Foreign Investment Tax Act

United States Taxes and the Foreign National Seller 

FIRPTA- The Foreign Investment In Real Estate Tax Act is the law that allows potential income tax money to be withheld from foreign citizens when they sell property in the United States. This Foreign Investor Tax Act first became law in 1980. Because FIRPTA excludes property under $300,000, it was not often addressed in many cities until the last few years. If FIRPTA affects you it is possible to apply for a seller exemption. This is where the IRS may lower or eliminate the withhold amount. A 15% of THE SALES PRICE withhold from the Seller can be a lot of money!

Wikipedia’s definition is: The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), enacted as Subtitle C of Title XI (the “Revenue Adjustments Act of 1980”) of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599, 2682 (Dec. 5, 1980), is a United States tax law that imposes income tax on foreign persons disposing of US real property interests.

WHAT TO DO NOW?

  • Meet with us to strategize a plan for you to sell your property 
  • We will provide you with the necessary forms to sell your home and apply to reduce or eliminate the withhold. 
  • Your property can be marketed but will not close unless there are withhold monies or an exclusion
  • If the IRS declines your exclusion request, you will have 15% of the sales price withheld at closing. If more money is needed you will need to provide funds to finalize the sale

Reasons For Exclusion Approval

The IRS may make an agreement with a person to substitute a different asset waiving the withhold. Also, if you are selling the property at a loss, the 15% withhold amount exceeds this year’s tax liability or if you are gifting your profit to a spouse, the IRS typically grants the exclusion request.

Other FIRPTA Exemptions 

YOU MUST STILL APPLY, however, Professional Athletes and Foreign Government-Related People are exempt from FIRPTA. Students, Teachers, Trainees and their Dependents who have lived in the U.S. for over 5 years are also exempt. “Substantial Presence” exempts people who have lived in the U.S. for over 31 days “this year” AND 183 days in the last three years. The “days” are counted this way: each day you were present in U.S. this year count as one. One day for every 3 days present counts as one for last year and one day for every 6 days present for the year before. If you meet the 31 day rule AND the 183 day rule you can be exempt.

How Do You Get Your Money Back?

You get your withheld money back if you are owed a tax refund after filing a standard U.S. Tax Return.

DISCLAIMER: I know about the FIRPTA rules because I sell Foreign People’s Real Estate for them in Las Vegas, Nevada. Because I am not an Accountant or Attorney, I am unable to provide tax or legal advice. Therefore, if you have any questions, please seek professional advice. I’m always happy to sell your home or find you a good investment property!

Revised 11-2019  Blog written by: Terri Grosse. Terri has sold real estate in Las Vegas since 1993 and is a principal of www.HomesForSale.Vegas  Feel free to give Terri a call or text her at 702-656-1818