How FIRPTA Affects Sellers
FIRPTA affects sellers of U.S. real estate in a few ways.
First, the withholding tax that must be paid to the IRS by the foreign seller can be significant. The tax is 15% of the gross sale price of the property. This can amount to a large sum of money for the seller, especially if the property is sold at a high price.
Another way that FIRPTA affects sellers is by reducing the number of potential buyers for their property. Many potential buyers are foreign investors who would not be subject to FIRPTA’s withholding tax.
This can lead to a longer sales process and/or a lower selling price.
Finally, sellers may have difficulty getting payment from foreign buyers who are subject to FIRPTA. The buyer is required to withhold the 15% tax from the gross sale price and send it to the IRS. This can cause delays in receiving payment and, in some cases, may lead to the buyer backing out of the sale.
The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) is a law that requires buyers of U.S. real estate to withhold a percentage of the sale price and send it to the Internal Revenue Service (IRS). The withholding tax is 15% of the gross sale price for properties that are worth more than $300,000.
The person buying the property (the buyer) is responsible for paying the withholding tax, regardless of whether or not they are the actual purchaser. This can lead to delays in closing on the sale and/or affect the final sale price.
How FIRPTA Effects Buyers
FIRPTA affects buyers in a few different ways.
First, it can add an extra layer of complexity to the buying process. The buyer is responsible for withholding the money and sending it to the IRS, which can add time and paperwork to the transaction.
Second, it can increase the cost of buying a property. Because buyers are responsible for paying the withholding tax, they may need to increase their offer price in order to account for it.
Finally, FIRPTA can make it more difficult to sell a property. If the buyer is not able to withhold the required amount of money, they may have to pay a penalty. This can make potential buyers less interested in purchasing the property and could lead to a lower sale price.