Section 1445 of the Internal Revenue Code requires the buyer(s) of real estate from a foreign seller to act as withholding agents for the IRS, withhold tax on the proceeds of the sale, and remit the withholding to the IRS.
Does FIRPTA Apply to Vacant Land?
FIRPTA applies to all property, including vacant land, purchased from a foreign seller. The FIRPTA withholding tax required on the sale of vacant land is 15%, and there is no eligibility for reductions or exemptions from the rate, as there is for residences.
How to Calculate the FIRPTA Withholding Rate
There are four scenarios that determine which withholding rate or exemption applies. The calculation begins with the intention of the buyer.
- The buyer must be an individual, and the buyer, or a member of the buyer’s family, plans to make personal use of the property as a residence.
- They must plan to reside at the property at least 50% of the time for each of the first two years following the date of purchase. In this case, the buyer(s) should provide you with a residential use affidavit stating that those are their intentions.
If the buyer is not an individual, or doesn’t plan to use the property as a residence, the withholding rate is automatically 15%.