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The Foreign Real Estate Investment Tax Act (FIRPTA) is a law that requires foreigners to tax profits on the sale of real estate or other property and pay taxes. This law was approved in 1980 with the claim that real estate transactions were the same for both United States residents and foreigners. Likewise, the law seeks to prevent foreign persons with properties in the country from selling them and not paying the corresponding tax on the profit from the sale.

Who is affected by FIRPTA?

The law affects any non-resident foreigner and those foreign companies that are not considered national corporations. From the point of view of the tax return, any person who does not reside, or any corporation or foreign company that sells a property within the United States, will be subject to the provisions of this law.

How does it work?

FIRPTA will retain on the day of the sale of the property 10% of the sale price if the transaction is less than $ 1,000,000 and 15% if it is greater than $ 1,000,000. Said money will be retained in an account called “custody deposit” by the company or the attorney in charge of processing the title. The money will be in the custody deposit until the investor files the income tax return in January of the year following the sale closure.

Once this tax return is made and the IRS indicates the amount of the tax, the difference of withholding and tax will be reimbursed to the seller.

How does it affect buyers?

It is important that the buyer ensures that the retention is made in case the seller is a non-resident foreigner or a foreign company that is not considered a national corporation; otherwise, it could be he who is responsible for paying that retention.
This article is made for informative and divulgative purposes. For this reason, it is important that before making any decision, visit or contact a certified specialist in the field, since the opinion of the expert is the one that should be considered.

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