FIRPTA stands for “Foreign Investment in Real Property Tax Act” of 1980. Contrary to popular belief, this act is not a tax at all; it is a withholding. This withholding was designed by the U.S. Internal Revenue Service (IRS) to ensure foreign owners of U.S. property pay their share of taxes on the profits (or gain) when they sell.
There are 10 exemptions that a foreign buyer can qualify for. Generally the buyer does not have to withhold if they acquire the property for use as a residence and the amount realized (sales price) is not more than $300,000. The buyer or a member of their family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant. For this exception, the buyer must be an individual purchasing in their own name.
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