FIRPTA - U.S. Income Tax Regulations for Foreign Nationals Real Estate Investments
On FIRPTA Have you heard ??
The last time I said this word to the investor he thought I told him "falafel in the pita" .. a true story. We haven't touched 🙂
So unfortunately - this is something less nice than falafel. And those who don't know, it's time.
Initials of FIRPTA are: Foreign investment in real estate tax act.
These are, in fact, regulations of the IRS (U.S. Income Tax) for U.S. real estate investment by foreign nationals.
According to the FIRPTA regulation when a foreign citizen, who owns a private property, wants to sell the property - the law firm is required by law to deduct 15% withholding tax from the transaction price and transfer it to the IRS upon closing.
Please note - this is about 15% of the selling price and not the capital gain. That is - if the sale price is $ 100,000 it is about $ 15,000 to be deducted from the seller on closing.
The seller will meet all or part of the money back (depending on the tax that will actually be required to pay) only when he submits his report and reports on the sale of the property.
In this way, the IRS ensures that foreign nationals do not evade reporting and tax payments.
So far, all standard information .. But another important point!
Many investors who are debating whether to purchase a property in their first or LLC name do not know that beyond the usual legal benefits of opening an LLC - another benefit is that most of the companies do not treat the LLC as a foreign seller and therefore do not deduct 15%.
In other words, if the seller of the property is an LLC and not a private person, the FIRPTA is not valid for him.
For us investors, the issue of cash flow is often critical, and 15% deducted from the deal is not a trivial matter ..
Then consider your steps accordingly.
I wish everyone a happy holiday!
Neta - Paz Group
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