Important Information for International Sellers
FIRPTA Withholding Increases - Recent changes by Congress affect foreign sellers of certain properties.
Congress recently made changes to the U.S. Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). While two changes should benefit the real estate community, a third will impact foreign sellers of certain properties.
On the positive side, new FIRPTA rules will make U.S. commercial property more attractive to foreign investors. The law doubles the maximum amount of stock ownership a foreign investor may have in a U.S. publicly-traded real estate investment trust (REIT), from the current 5 percent to 10 percent. It also permits certain foreign pension funds to invest in REIT's without having FIRPTA treatment apply.
On the other hand, the new FIRPTA rules increased the withholding tax paid by foreign sellers of certain properties, effective February 17, 2016.
How It Works
The law considers three levels of property purchases. A personal residence worth $300,000 or less; a personal residence worth more than $300,000 but less than $1 million; and properties valued at $1 million or more.
- $300,000 or less: Foreign sellers currently pay no FIRPTA tax, and this doesn't change under the new rule., if the property will be used as a residence.
- $300,000-$999,999: The current 10 percent FIRPTA tax does not change under the new rule if the property will be used as a residence.
- $1 million-plus: The FIRPTA tax rises from the current 10 percent to 15 percent. In this $1 million-plus category, it doesn't matter whether or not the property will be used as a residence.