Real Estate: tax hikes due to FIRPTA changes & how to avoid them
FIRPTA is the Foreign Interest In Real Property Tax Act and became law to force foreign sellers of U.S. real property to pay tax on gain from sales. Without FIRPTA changes, sellers would pocket the proceeds and remove themselves from the U.S. and its taxing jurisdiction. FIRPTA was designed to cause foreign sellers to file U.S. returns and report any gain.
The 2015 statute increased the withholding obligation imposed on buyers in a transaction where a seller is a foreign person. The ten percent (10%) rate is increased to fifteen percent (15%) in any transaction where the buyer is not acquiring a principal residence from a foreign seller. The fifteen percent (15%) rate also applies if the sales price of a principal residence exceeds $1,000,000.
Exceptions to the increased rate
There are two exceptions to the increased rate of withholding. Where a buyer acquires a principal residence from a foreign seller for a sales price over $300,000 and less than or equal to $1,000,000, the ten percent rate will continue to apply. The acquisition of a principal residence from a foreign person for a sales price of $300,000 or less will not require withholding consistent with past practice. Withholding is also not required if a Seller provides a Withholding Certificate from the IRS which excuses the withholding or the amount realized by the seller is zero.
The effective date is for all closings after February 15, 2016.
It is not uncommon for tax practitioners to uncover transactions where the Foreign Interests in Real Property have not been properly identified. A foreclosure on U.S. real property collateral securing a foreign loan, the arrangement may be subject to taxation under FIRPTA. Consistent with tax treaties, the sale of a real property is taxable by the host country. FIRPTA simply expands the definition to capture transactions that were designed to avoid U.S. tax.
Why Compliance Monitoring Matters for NY and NJ Businesses
Compliance programs are no longer judged by how they look on paper, but by how they function in the real world. Compliance monitoring is the ongoing process of reviewing, testing, and evaluating whether policies, procedures, and controls are being followed—and whether they are actually working. What Is Compliance Monitoring? In today’s heightened regulatory environment, compliance […]
When Are New Jersey Business Owners Personally Liable for Corporate Debt?
New Jersey personal guaranty liability is a critical issue for business owners who regularly sign contracts on behalf of their companies. A recent New Jersey Supreme Court decision provides valuable guidance on when a business owner can be held personally responsible for a company’s debt. Under the Court’s decision in Extech Building Materials, Inc. v. […]
Commercial real estate trends in 2026 are being shaped by shifting economic conditions, technological innovation, and evolving tenant demands. As the market adjusts to changing interest rates, capital flows, and workplace models, investors, owners, tenants, and developers must understand how these trends are influencing opportunities and risk in the year ahead. Overall Outlook for Commercial […]
One Big Beautiful Bill: New Tip Income Tax Rules Employers & Workers Need to Know
Part 2 – Tips Excluded from Income Certain employees and independent contractors may be eligible to deduct tips from their income for tax years 2025 through 2028 under provisions included in the One Big Beautiful Bill. The deduction is capped at $25,000 per year and begins to phase out at $150,000 of modified adjusted gross […]
One Big Beautiful Bill: New Overtime Tax Rules Employers and Employees Need to Know
Part 1 – Overtime Pay and Income Tax Treatment Overview This Firm Insights post summarizes one provision of the “One Big Beautiful Bill” related to the tax treatment of overtime compensation and related employer wage reporting obligations. Overtime Pay and Employee Tax Treatment The Fair Labor Standards Act (FLSA) generally requires that overtime be paid […]
New York’s FAIR Business Practices Act: What the New Consumer Protection Measure Means for Your Business
In 2025, New York enacted one of the most consequential updates to its consumer protection framework in decades. The Fostering Affordability and Integrity through Reasonable Business Practices Act (FAIR Act) significantly expands the scope and strength of New York’s long-standing consumer protection statute, General Business Law § 349, and alters the compliance landscape for New York […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
