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What is FIRPTA?
FIRPTA stands for Foreign Investment in Real Property Tax Act. It requires the Buyer of real property from a Foreign Seller to withhold 10% or 15% of the amount realized, generally the sales price, and remit it to the IRS within 20 days of closing unless an exemption applies. The withholding percentage will depend upon the sales price and whether the Buyer or Buyer’s family member intends to use the real property as a residence.*
The withholding percentage represents an estimate of the federal capital gains tax that may be owed by the Foreign Seller when selling real property in the United States.
The standard Hawaii Association of Realtors Purchase Contract provides that escrow is to withhold and remit the FIRPTA amount to the IRS unless the Seller provides the Buyer with a certificate of exemption or waiver from HARPTA.
It is the Seller’s burden to prove that an exemption or waiver applies and for the Buyer to acknowledge and approve the Seller’s exemption or waiver prior to closing. Under federal law, it is the Buyer’s responsibility to determine if the Seller is a foreigner subject to FIRPTA withholding and that the proper withholding amount is remitted to the IRS on a timely basis.
There are certain exemptions from withholding if one of the following apply:
*Buyer or member of buyer’s family must have definite plans to reside in the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.
This information is presented for informational purposes only and is deemed reliable but is not guaranteed. It is not our intention to provide any legal, financial or business advice. For specific information, please consult a qualified advisor.