The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires a “foreign person” to pay tax on the Real estate gain. However, the law does not charge the seller with insuring compliance. The law requires the buyer to determine whether or not the seller is a “foreign person” (basically a non-resident alien). If the seller is a “foreign person” as defined by the statute, then the buyer must withhold 10% of the sale proceeds at closing. If the law applies to your purchase, then within 20 days of the sale, you are required to file Form 8288 with the IRS. Along with the form, you submit 10% withholding. It is important to know about FIRPTA, because if you do not withhold the required amount, file the form on time, and submit the withholding, penalties do apply. If the buyer fails to determine that the seller is a foreign person and thus fails to withhold 10% of the proceeds, the buyer is liable for the 10%. WOW! Significant.
(FIRPTA) is becoming bigger and bigger, as foreigners grab all those bargains in the U.S. over the past 3-4 yrs. Now those buyers “foreign person” (basically a non-resident alien) are starting to sell all those bargains. So Buyers beware if your seller is a “foreign person”. because the IRS will look at you when they sell, better withhold 10% of the sale price.
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