August 22nd, 2013 3:38 PM by Karyn Smith
Many people are under the impression that FRIPTA is a tax, when, in reality, it is a withholding in the event of a tax liability – think of it more as cash flow than cash payment.
The Foreign Investment in Real Property Tax Act (FIRPTA) requires that non-residents selling US property are subject to withholding of 10% of the gross sale price. This withholding is retained until the appropriate paperwork is filed has been processed by the IRS . If there is no capital gain due on the sale of a US property, then the seller receives a full refund of their 10% withholding. Otherwise, where gain is calculated, the IRS retains the tax element and refunds the balance to the sellers.
The timing of the filing is critical – the application must be submitted to the IRS on or before the closing date otherwise it is deemed late and the 10% must be submitted to the IRS.