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FIRPTA Rate Increase: Explained

As an international real estate professional, it is important to understand the transactional nuances that foreign investors will face when buying property in the United States. Not all countries require title insurance, for example. Many don’t have buyer’s agency. Another example is the federal withholding tax required of foreign buyers, called the Foreign Investment in Real Property Tax Act (FIRPTA).

What is FIRPTA?
When selling a U.S. property, foreign investors are required to withhold 10% of the purchase price and remit it to the Internal Revenue Service (IRS) at the time of closing, unless certain exceptions are met. With the new increase, the rate jumps to 15% for properties over US$1 million only. 

Why is it important to you?
Though the buyer is legally responsible for remitting the funds to the IRS, in certain circumstances the buyer’s agent can be held responsible.

You’ll want to have an experienced tax attorney on hand for your client to help guide them through the legal requirements during the purchasing process. But, it’s important that you have a solid understanding of FIRPTA as well. NAR’s Government Affairs division has compiled a comprehensive and easy-to-understand Issue Brief on FIRPTA and the recent withholding rate increase. Read the Issue Brief here.

To learn more about what to expect when working with foreign buyers, take the Certified International Property Specialist (CIPS) courses from NAR. The education offers five full days of study focusing on the critical aspects of international real estate transactions including globalization of economies, international capital flow, marketing and business planning strategies, roles and expectations in international transactions, and the unique business and cultural practices of countries around the world. Learn more about CIPS here.

Cynthia Fauth

Cindy Fauth (CIPS, ePRO) is Director of Global Marketing & Communications for the National Association of REALTORS® Commercial & Global Services division. She joined NAR in September 2009, and lends her expertise to the promotion and growth of the Certified International Property Specialist (CIPS) designation, At Home with Diversity certification, and International REALTOR® membership, along with the many other programs NAR Commercial & Global Services offers.

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