Gidney & Company, P.A.,CPA's

"FIRPTA"

The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests.

A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 15% (10% for dispositions before February 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).

Is The Property Being Sold as a US Real Property Interest?

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A U.S. real property interest is an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the U.S. Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a U.S. real property holding corporation during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition (applicable periods).

An interest in a corporation is not a U.S. real property interest if:

1. Such corporation did not hold any U.S. real property interests on the date of disposition,
2. All the U. S. real property interests held by such corporation at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, and
3. For dispositions after December 17, 2015, such corporation and any predecessor of such corporation was not a RIC or a REIT during the shorter of the applicable periods during which the interest was held.

Who is a Non-Resident Alien?

A Non-Resident Alien is defined as an individual who is neither a US citizen nor a resident alien. A Resident Alien is a non-citizen who holds a green card or who meets the substantial presence test.  The substantial presence test requires that an individual be physically present in the US for at least 31 days during the current year and that the total of all of the days in the current year plus one-third of the days in the first preceding year and one-sixth of the days in the second preceding year add up to at least 183 days.  If the green card or substantial presence test is met the transaction is not subject to FIRPTA.  However, for tax purposes, a US resident is subject to US taxation on worldwide income and consequently the sale is taxable under general tax rules.