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Anyone who plans to purchase real property in the U.S. from a foreign individual is required to make sure that the seller pays the FIRPTA withholding. The buyer must withhold 15% of the sales price from the seller and deposit the tax to the IRS.
FIRPTA withholding is required to be submitted to the IRS within 20 days of the closing together with IRS Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property
Navigating FIRPTA Withholding If the amount realized is $300,000 to $1 million, FIRPTA is withheld at a rate of 10% of the amount realized. If the amount realized is more than $1 million, FIRPTA is withheld at a rate of 15% of the amount realized.
In order to apply for the withholding certificate, you will need to file Form 8288-B with the IRS prior to the date of the sale and notify the buyer that you have applied for a FIRPTA certificate. Note that filing Form 8288-B requires that an Individual Tax Identification Number (ITIN) be provided.
According to the IRS, you can be exempt from FIRPTA withholding if you meet one or more of the following: Exception #1 - Buyer Will Reside. Exception #2 Publicly Traded Corp. Exception #3 Corp Certifies that Interest is not US Real Property. Exception #4 Seller Certifies They Are Not Foreign.
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The tax rate required by FIRPTA is 15% of the property sales price. However, some exemptions can be applied depending on the situation. Also, the FIRPTA tax may be refunded in part or in full to the seller after the IRS has approved his/her income tax return.
BASIC RULES UNDER FIRPTA If the seller is a foreign entity or person, the buyer must withhold the 10% and remit the tax to the IRS within 20 days of the date of closing. If the buyer fails to do so, the buyer is liable to the IRS for the tax that should have been withheld plus penalties and interest.
FIRPTA states that, in closings involving a foreign seller, the buyer must withhold fifteen percent (15%) of the gross purchase price from the foreign sellers sales proceeds and send it in to the IRS within 20 days of closing.
The Foreign Investment in Real Property Tax Act (FIRPTA) is a tax imposed on the amount realized from the sale of real property owned by a foreign seller. There are exceptions to this tax-withholding requirement.
The basics: What FIRPTA is and how it works In most cases, the buyer is responsible for making sure the IRS receives its money within 20 days. The buyer usually is the withholding agent and is ultimately responsible for sending the funds to the IRS.

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