So, who is responsible for FIRPTA witholding on the sale of US property - the seller or the buyer?

Foreign Investment in Real Property Tax Act (FIRPTA) was established in 1980 to ensure the withholding of estimated amount of taxes which may be due on the gain from the disposition or transfer of a US real property interest from a foreign person.

If you purchase US real property from a foreign individual or corporation then you are required to make sure that the seller pays any taxes due on the property. The buyer must execute or have executed the correct forms including the sellers name, address and social security number or individual taxpayer identification number. 10% of the gross sales price must be withheld and submitted to IRS or held in escrow whilst an application for reduced FIRPTA withholding is timely filed and processed.

If the buyer does not take care of the withholding and the seller is a foreign entity who leaves without paying their tax then 10% will be taken from the buyer.

Most buyers are unaware that it is their responsibility to determine if the transferor/seller is a foreign person and subject to FIRPTA withholding. In reality, the settlement agent (title company or attorney) may be instructed to deduct the 10% and submit to IRS or hold in escrow whilst an application for reduced FIRPTA withholding is submitted to IRS for processing. 

 

If you have any questions regarding FIRPTA please don't hesitate to call me.