Foreign Investment in Real Property Tax Act Amended

By admin

This blog is being written based off of a recent amendment (26 U.S.C. §1445, as amended by P.L. 114-113) to the Act regulating foreigners and their United States real estate investments.  The Act itself provides the IRS the ability to tax a foreign person or corporation on the profits they reap on the sale of real estate within the United States. The Foreign Investment in Real Property Tax Act (FIRPTA) ensures that a tax is collected by imposing a withholding requirement  on such transactions.  The IRS looks to a “withholding agent” as the person or entity responsible for FIRPTA compliance. Well, who is this agent??  Correct, that is why we are writing this update.  Unfortunately, we as your title insurance company get stuck with insuring such withholding is taking place.  The truth is the IRS has provided guidance letters stating that a title company is not treated as a withholding agent, but when a transaction lacks the involvement of counsel or other potential escrow provider we take on the role in default.

Onto the amendment and for all of you foreign investors, unfortunately it will hurt your short term wallet post settlement.  The FIRPTA withholding is going from 10% to 15% for all investment properties, while staying at 10% if the property is used as a primary residence.  If it is a residence and over a $1,000,000.00 sales price, then the withholding will also be 15%.

WHO IS CONSIDERED A FOREIGN PERSON?

• Non-resident aliens (even with a social security number)
• Foreign corporations that have not elected to be treated as domestic corporations
• Foreign partnerships, trusts or estates
• Disregarded entities (i.e. sole member LLC) unless the LLC elected to be treated as a partnership or corporation

A resident alien, with a green card is NOT a foreign person and FIRPTA does not apply. 

U.S. real property interest owned jointly by foreign and non-foreign transfers:    

First, allocate the sales price among the transferors based on capital contribution, then, aggregate the amount allocated to any foreign person.

Of course there are some exceptions to the FIRPTA requirements.  Please feel free to call our offices for any further clarification on how your transaction will be handled.

About World Wide Land Transfer:

World Wide Land Transfer is a full service Settlement and Escrow Company also providing comprehensive title insurance services for all forms of real estate transactions ranging from a home purchase or refinance to the most complex commercial transaction.  World Wide Land Transfer started predominantly as a PA Title Company in 2004 but grew quickly and started issuing NJ Title Insurance, NY Title Insurance, MD Title Insurance, VA Title Insurance and FL Title Insurance. World Wide now covers most counties throughout the nation.