What is FIRPTA?

This topic recently came up with a client. This is the law that requires the buyer of a US property that is sold by a foreigner to withhold 15% and send it to the IRS.

For example: Mr. Amir, a foreigner, sells a property to Ms. Jones for $300,000. Ms. Jones would pay Mr. Amir $255,000, and send the remaining $45,000 (15%) to the IRS on behalf of Mr.

Amir. Mr. Amir would then file a US tax return, and this withholding would be reported on the tax return.

The recent situation involved a client whose foreign family member was gifting her a FL condo unit. According to the FIRPA rules and the definitions, my client has to pay 15% of the fair market value (FMV) of the property in to the IRS, even though she did not receive any money. There are exceptions to this, and she could do a simultaneous close in order to avoid paying tens of thousands of dollars out of pocket. I worked all of this out with the client and the real estate attorney.

Of course, there are exceptions, complicated rules, and IRS forms involved.