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withholding of tax on dispositions of u.s. real property interest

FIRPTA, also known as The Foreign Investment in Real Property Tax Act of 1980, income tax withholding may apply to the disposition of a U.S. real property interest by a foreign person (the transferor). 

A "disposition" includes but it 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 a tax on the amount realized on the disposition.

If you are the transferee/buyer and the transferor is a foreign person, you may be held liable for the tax if you fail to withhold. In most cases, the transferee is the withholding agent.

u.s. real property interest

A U.S. real property interest is an interest (other than as a creditor) in real property located in the U.S. or the U.S. Virgin Islands, as well as certain personal property associated with the use of real property.

A U.S. real property interest also means any interest (other than as a creditor) in any domestic corporation, unless 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.

rates of withholding

The rate of withholding generally is 15% (10% for dispositions before February 17, 2016).

US & Canada Tax - Lily Lo CPA Professional Corporation - Edmonton, Alberta

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