Don’t Forget Significant FIRPTA Changes!

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South Carolina real estate practitioners have the pleasure of dealing with two distinct sets of tax withholding laws, one for income of non-residents of South Carolina to be reported to the S.C. Department of Revenue, and the other for the income of “foreign persons” to be reported to the IRS.

FIRPTA frogThe Federal law, Foreign Investors in Real Property Tax Act (FIRPTA), saw some significant changes effective for closings on or after February 16 of this year following President Obama’s signing into law the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) late last year. New exemptions to FIRPTA codified by the PATH Act may encourage the flow of capital into the United States.

Under the PATH Act, when withholding is required, the amount to be withheld has changed, in most cases, from 10% to 15%.

The following summarizes, in simpler language than the Federal law, the withholding amounts required by FIRPTA as of February 16:

  • If the property will not be used as the buyer’s primary residence, the withholding rate is 15% of the amount realized, and reporting is required.
  • If the property will be used as the buyer’s primary residence and the amount realized is $300,000 or less, no withholding and no reporting are required.
  • house taxIf the property will be used as the buyer’s primary residence and the amount realized exceeds $300,000 but does not exceed $1,000,000, the withholding rate is 10% of the amount realized, and reporting is required.
  • Regardless of the buyer’s use of the property, if the amount realized exceeds $1,000,000, then the withholding rate is 15% of the amount realized, and reporting is required.

Real estate practitioners, sellers, buyers and others with questions concerning FIRPTA compliance should consult tax advisors.

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