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WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED STATES REAL PROPERTY INTERESTS
The disposition of a U.S. real property interest by a foreign person (the
transferor) is subject to the Foreign Investment in Real Property Tax Act
of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States
to tax foreign persons on dispositions of U.S. real property interests. A U.S.
real property interest includes sales of interests in parcels of real property
as well as sales of shares in certain U.S. corporations that are considered U.S.
real property holding corporations. Persons purchasing U.S. real property interests
(transferee) from foreign persons, certain purchasers' agents, and settlement
officers are required to withhold 10 percent of the amount realized (special
rules for foreign corporations) Withholding is intended to ensure U.S. taxation
of gains realized on disposition of such interests. The transferee/buyer is
the withholding agent. If you are the transferee/buyer you must find out if
the transferor is a foreign person. If the transferor is a foreign person
and you fail to withhold, you may be held liable for the tax.
The amount that must be withheld from the disposition of a U.S. real property
interest can be adjusted pursuant to a withholding certificate issued by the
IRS.
- A disposition includes the sale/purchase of any U.S. real property
interests.
- Generally speaking, in reference to the sale/purchase of real estate,
the person selling the real estate, the seller, is commonly referred to
as the transferor.
- The purchaser/buyer of the real estate is commonly referred to as
the transferee.
- Generally speaking the amount realized is the purchase/sales price
of the real estate.
- Generally speaking the buyer must find out if the seller is a foreign
person. If so, the purchaser/buyer must withhold income taxes.
- The purchaser/buyer may be held liable for the tax that should have
been withheld on the purchase.
One of the most common exceptions to FIRPTA withholding is that the transferee
(purchaser/buyer) is not required to withhold tax in a situation in which the
purchaser/buyer purchases real estate for use as his home and the purchase
price is not more than $300,000.
For additional information
on the withholding rules that apply to corporations, trusts, estates, and
REITs, refer to section 1445 of the Internal Revenue Code and the related
regulations. For additional information on the withholding rules that apply
to partnerships, refer to discussion under partnership
withholding. Also consult IRS Publication
515, Withholding of Tax on Nonresident Aliens and Foreign Entities, section
U.S. Real Property Interest.
Additional information may be obtained from:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409.
Note: This page contains one or more references to the
Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official
tax guidance. References to these legal authorities are included for the convenience
of those who would like to read the technical reference material. To access the
applicable IRC sections, Treasury Regulations, or other official tax guidance,
visit the Tax Code, Regulations,
and Official Guidance page. To access any Tax Court case opinions issued
after September 24, 1995, visit the Opinions
Search page of the United States Tax Court.
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