In 1980, Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA), 26 USCS 1445. The law provides that if a seller of real property is a "foreign person," the buyer must withhold a tax equal to 10% of the gross purchase price, unless an exemption applies under the law.
A "foreign person" is a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. A resident alien is not considered a foreign person under the law.
Exemptions to FIRPTA
There are a number of exemptions to FIRPTA. A transaction is exempt if:
- the seller of real property furnishes a non-foreign affidavit stating under penalty of perjury that the seller is not a foreign person
- the transaction involves the transfer of a property acquired for use as the buyer's residence and the amount realized is not greater than $ 300,000