If you have ever bought or sold property, you know how challenging it can be. But what about when unexpected tax laws are part of the deal? A federal law known as the Foreign Investment in Real Property Tax Act (FIRPTA) requires buyers to withhold a portion of the sale price when purchasing from a foreign seller.
Should you fail to comply with this Act, you could be on the hook for tens of thousands of dollars in unpaid taxes. Whether you are a buyer, seller, or real estate professional, you must understand FIRPTA’s role to avoid costly mistakes. It can be extremely beneficial to have a knowledgeable Lisle, IL real estate attorney to help you navigate the complexities of FIRPTA.
What Is FIRPTA?
FIRPTA is a federal law that was enacted in 1980 to ensure that foreign sellers paid U.S. taxes on all property sales. FIRPTA applies in every state. The basic rule under the Act is that buyers are required to withhold 10-15 percent of the sales price at closing if the seller is a “foreign person.” This means the seller is a nonresident alien individual, foreign corporation, partnership, or trust.