Florida's real estate market is a hotbed of opportunity, attracting not just sun-seekers, but also savvy foreign investors. However, when it comes time to sell your Florida property, a hurdle awaits: the Foreign Investment in Real Property Tax Act (FIRPTA).
FIRPTA: A Tax Withholding Surprise
Enacted in 1980, FIRPTA requires withholding tax on the sale of US real estate by foreign investors. This means the buyer of your property is legally obligated to withhold a portion of the sale price and send it to the IRS. The withholding rate is typically 15%, but it can be lower depending on a tax treaty between the US and your home country.
Points to Consider:
- FIRPTA applies not just to traditional sales, but also to exchanges, gifts, and even involuntary dispositions (like condemnation by the government).
- There are exemptions and reduced withholding rates available in certain situations. Your tax advisor can assess your eligibility for these benefits.
- Failing to comply with FIRPTA can significantly delay the closing process and lead to hefty tax penalty.
Source: the IRS website.
