On December 18, 2015, the PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015 (the "PATH Act") became law which enacts significant changes to FIRPTA (FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT of 1980).
Among all, the most significant change is the change of percentage withheld from sales procees ("amount realized*")of certain real estate property by foreign persons. Currently it is 10%. For closings on or after Febuary 16, 2016, either 10 or 15 percent of the amount realized on the sale of real property will be withheld as below:
- For any sale in which the buyer/transferee does NOT intend to use the property as a residence, 15% of the amount realized will be withheld.
- For any sale in which the amount realized is up to $1,000,000 (over $300,000) and the buyer/transferee does intend to use the property as residence, 10% of the amount realized.
You are exempt if one of the following applies:
-The transferor provides a properly prepared certification, under penalty of perjury that the transferor is not a foreign person;
-The IRS has provided a withholding certificate that no withholding is required or a reduced withholding is allowed; or
-The individual transferee provides an affidavit attesting that the transferr acquiring the property for uses as a residence and the amount realized is no more than $300,000.
*Amount realized - Section 1001(b) of the Internal Revnue Code the amount realized as "the sum of any money received plus the fair maket value of the property (other than money) received."
Disclaimer: This is for general informational purpose only and should not be relied upon nor regarded as intended to provide advice for any legal, business, economic or tax decisions. You should consult with a qualified advisor for making any decisions regarding this matter.
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