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April 2016

Foreign investors in real property subject to new taxes

Two NAR-supported provisions affecting the Foreign Investment in Real Property Tax Act (FIRPTA) were part of the recently-enacted Protecting American Taxpayers from Tax Hikes (PATH) Act. As part of a package of tax changes to offset the cost of the two provisions, Congress increased the FIRPTA withholding rate, boosting it to 15 percent from the previous rate of 10 percent.

The change affects closing that occur on or after February 17, 2016.

Property acquired from foreign persons that will be used as a personal residence is exempt from the increase if the sales price does not exceed $1 million. 

According to an Alert from Old Republic Title, the following rates apply:

Sales Price is $300,000 or less and buyer acquires as a personal residenceNo withholding
Sales price is more than $300,000 but not more than $1 million and buyer acquires as a personal residence10% withholding
All transactions at any sales price and buyer is NOT acquiring as a personal residence15% withholding

Source:  Old Republic Title

Staff at the National Association of REALTORS® recently released an explanation of the changes to the FIRPTA rules. That 3-page document may be viewed or downloaded here.