FIRPTA is an acronym for the Foreign Investments in Real Property Tax Act. FIRPTA is a U.S. tax statute that imposes tax on foreign persons, defined as nonresident non-citizen individuals and corporations, disposing of real property in the United States. In order to ensure collection, the statute places the burden of verifying the applicability of FIRPTA on the buyers, as well as withholding and remitting the required funds, and creates a lien against the real property to secure the payment of any amount due. Real property transactions with a value of $300,000.00 or less which will be the principal residence of the purchaser are exempt from FIRPTA withholding.
Because the statute secures the payment of any requited withholding as a lien against the property being purchased, buyers should verify whether the transaction is exempt from FIRPTA and, if not, whether the seller is a foreign person under the statute. The escrow agent or title company handling the transaction may request verification from the seller as part of their processing of the transaction, or as a courtesy to the parties, but the ultimate responsibility is on the purchaser. Typically the title company will assist in the event withholding is required by deducting the funds from the seller’s proceeds and remitting them to the IRS.