The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) governs property sales when the seller is a foreign national. The law's general rule is that the gains of any covered sale include a 10 or 15 percent withholding. FIRPTA has exceptions, however, which can exempt a taxpayer from any tax liability.

Ten Percent versus Fifteen Percent

Whether the proceeds from a sale are subject to the ten or fifteen percent withholding rule is a matter of timing. Any distributions that occurred before February 17, 2016, involved a 10% withholding rate. For distributions that occur after February 16, 2016, the rate increased to 15%.

FIRPTA Exceptions

FIRPTA includes exceptions to the withholding requirement. Any foreign seller who falls under an exception will be free from tax liability related to the sale.

One of the more commonly used exceptions is when the buyer purchases a property that they intend to use as a residence. They or a member of their family must have plans to reside at the property at least 50 percent of the days the property is occupied, and the amount realized from the sale cannot exceed $300,000. In addition, the buyer should have documentation of their intention to reside in the property.

Another exception is when a foreign buyer realizes a zero profit on the sale. Similarly, if the property is acquired by the United States or a U.S. state, the foreign buyer will be exempt from withholding.

Another common FIRPTA exception is in cases when a foreign seller believes the total tax due will be less than the required withholding amount. In these situations, the IRS may issue a withholding certificate. This certificate will either reduce or eliminate the withholding requirement.

When a foreign individual sells stock in a domestic corporation and that corporation is traded on a public exchange, the foreign seller will generally be exempt from withholding. The exception is if a significant non-public interest is sold.

Get Help From an Experienced IRS Tax Attorney

If you have questions about FIRPTA or other tax issues for foreign nationals, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.