New York City real estate attorney Natalia Sishodia releases a new article (https://sishodia.com/what-is-firpta-foreign-investment-in-real-property-tax-act/) that explains the meaning of FIRPTA or Foreign Investment in Real Property Tax Act. The lawyer mentions that in the United States, a domestic citizen is required to pay capital gains taxes on certain items including the sale of a real estate property. However, a foreign citizen is usually not required to pay these kinds of taxes. This is why the government put the Foreign Investment in Real Property Tax Act in place to collect tax from foreigners who sell real estate properties in the USA.
“With the vast amount of foreign investment in New York City today, understanding FIRPTA requirements have become very important. Any foreign seller or individual purchasing real estate from a foreign person should understand their responsibilities under FIRPTA,” says the New York City real estate attorney.
The lawyer explains that before FIRPTA, foreign sellers were not subject to any taxes for capital gains if they sell a U.S. real estate property. However, this was viewed as a competitive advantage to foreign investors who owned properties in the United States. This is why Congress removed this perceived advantage and required foreigners to pay a tax based on the gross amount realized by the sale of domestic real estate.
Attorney Natalia Sishodia also adds that a buyer purchasing from a foreign individual is required to withhold a percentage of the purchase price of the property. This is to ensure that tax is collected. The among will be held by the IRS in order to offset any taxes owed on the sale. If the amount withheld is bigger than the taxes calculated, the excess amount will be refunded to the seller.
In the article, attorney Natalia Sishodia explains the withholding rates based on the sales price of the property. The lawyer says that if the sales price of the property is less than $300,000, FIRPTA may not be applicable. If the sales price of the property is $300,000 to $1 million, FIRPTA taxes must be withheld at a rate of 10% of the amount realized. And lastly, if the sales price of the property is over $1 million, FIRPTA taxes must be withheld at a rate of 15% of the amount realized.
Lastly, the real estate lawyer emphasizes that it is very important to seek the help of a real estate attorney when it comes to matters such as the FIRPTA. Having a skilled attorney may be able to help the client understand their rights and ensure that their profits are safe.
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