A Path Act To Follow
Wednesday, May 25, 2016
Orlando REALTOR® | MayJune 2016
International sellers of U.S. real estate are now required to withhold 15 percent of the home's gross sale price.
By Sarah Gulati, Esq.
Prior to the PATH Act of 2015 (“Protecting Americans from Tax Hikes 2015,” effective December 15, 2015), if the seller of real property is a foreign person, federal law required buyers to withhold 10 percent of the gross sale price and provide it to the IRS. With the implementation of the PATH Act on February 16, this 10 percent tax withholding requirement has been increased to 15 percent. Meaning, if you are a foreign person selling U.S. real property, 15 percent of the gross sales price of that property will go to the IRS in the form of a tax.
There are a number of exclusions that must be noted.
First, if the transaction has a sales price of $300,001 to $1,000,000 and the property is meant as the buyer’s principle residence (according to the IRS, a principle residence requires that the buyer or a family must have definite plans to reside at the property for at least 50 percent 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 and then the 10 percent tax requirement remains.
Second, for transactions of $300,000 or less, and the property is to be the buyer’s principle residence, there are no tax withholdings due to the IRS under FIRPTA.
Other circumstances that are exempt from paying this FIRPTA withholding tax to the IRS include:
• if a non-foreign affidavit is provided by the seller;
• if a withholding certificate is granted to the seller by the IRS;
• if the amount realized by the seller is zero (zero gain or compensation), and
• if the property is purchased by the U.S. government or a political subdivision.
Therefore, all transactions where the property is not meant to be the buyer’s principle residence (at any sales price) will require the new 15 percent withholding to the IRS.
Sarah Gulati, Gulati Law, P.L., is a member of the Central Florida Real Estate Attorneys Council. She can be reached at Sarah@GulatiLaw.com.
CFREAC provides this column on real estate law issues as a service to ORRA members to provide a general understanding of the law on various topics of interest, not as substitute for individual legal consultation, and should not be relied on in specific situations without consulting with a real estate attorney. For more information, please visit www.centralfloridarec.com.