What is FIRPTA, you ask?
Quite literally, FIRPTA is an acronym for “Foreign Investment in Real Property Tax Act.”
What this act does is subject foreign sellers of US real estate to a withholding tax varying from 10% to 15% of the gross sales price of a property. (unless the buyer of the property meets the FIRPTA exemption.) This tax withholding is deducted directly from the seller’s net proceeds by the withholding agent. The withholding agent then remits this money directly to the Internal Revenue Service (IRS) within 20 days of closing.
Often times, it is clear to tell whether or not the seller of a real property is foreign or not and in turn, whether or not FIRPTA will apply to the transaction. Other times, the status is not so easily perceived. Such is the case when the seller is an LLC (Limited Liability Company.)
For the LLC with a single owner:
Although a single-member LLC is considered a legitimate legal entity, it reverts to being disregarded for purposes of US income tax reporting. This simply means that any US income tax reporting for the LLC is done in the name of the owner, not of the LLC. So if the owner of this LLC is a foreign individual, FIRPTA withholding rules would apply to this transaction–because the seller (for FIRPTA purposes) is the foreign individual, not the LLC.
For the LLC with more than one owner:
When there is more than one owner in a US LLC, this LLC reverts to being taxed as a partnership for US income tax reporting purposes. Since partnerships do not fall under the definition of a “foreign seller”, FIRPTA withholding rules would not apply in this situation.
Note: there are other withholding rules that pertain to partnerships with foreign partners – but this is done on an LLC level and not specific to the sale of the US real estate owned by the LLC taxed as a partnership. It is best to consult with a Certified Public Accountant to get further information on this.
As shown, it is important to determine the applicability of FIRPTA withholding when dealing with a foreign seller, as different rules apply to each unique situation. A Certified Public Accountant can advise you on the options available to you in complying with FIRPTA requirements on the sale of your property.
Florida Real Estate Title & Closings, Inc.
Disclaimer: Florida Real Estate Title & Closings, Inc. does not represent the article content on this website as legal or tax advice, nor does it express or imply any warranty with respect to the information presented and assumes no responsibility for any errors or omissions. It is for shared informational purposes only and up to the reader to use this information responsibly, seeking legal and tax advice as necessary to their situation.