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36

© Ticor Title Company

PATH ACT

INCREASES WITHHOLDING RATE

What does the new rule change about withholding

requirements?

The PATH Act increases the FIRPTA base withholding

rate from 10% to 15% of the amount realized on the sale

of real property by a foreign person (the transferor). If

the sales price does not exceed $1,000,000, Real Property

sold by a foreign person that is to be used as a residence

by the buyer qualifies for a reduced rate of 10%. If the

buyer is not using the property as a residence, the new

15% withholding rate is for all transactions. If the price

is higher than $1,000,000, the 15% withholding rate is

applicable for all transactions.

What are the benefits?

The PATH Act benefits the real estate industry by

doubling the maximum amount of stock ownership a

foreign person may have in a real estate investment trust

(REIT) from 5% to 10%. Another additional benefit is that

the law permits certain foreign pension funds to invest in

REITs without having FIRPTA withholding apply.

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When does it go into effect?

The PATH Act is effective 60 days after Obama signed it

into law. This applies to sales on and after approximately

FEBRUARY 17, 2016.*

What are the guidelines buyers must follow when

determining the withholding rate?

1. If the amount realized is $300,000 (typically the sales

price) or less, and the property will be used by the

buyer as a residence (within current regulations), no

amount is to be withheld or remitted to the IRS.

2. If the amount realized is greater than $300,000 but

does not exceed $1,000,000 and the property will be

used by the buyer as a residence, then the withholding

rate is 10% of the entire amount realized.

3. If the amount realized exceeds $1,000,000, then the

withholding rate is 15% of the total consideration,

regardless of how the property is used by the buyer.

NOTE: Other exceptions to withholding may apply.

Are there any obligations for FIRPTA withholding by

the real estate agent or broker?

If you represent the buyer or seller of real property

subject to FIRPTA withholding, you could be liable for the

tax up to the amount of commission received in certain

circumstances. We always recommend discussing your

situation with a tax professional.

*

The IRS has not issued new forms or publications which state the

official date as of yet.

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President Obama recently-enacted the Protecting Americans from Tax Hikes (PATH)

Act. This law creates significant changes to the Foreign Investment in Real Property Tax

Act (FIRPTA).

PATH ACT

If you have additional questions about the PATH Act, please contact a tax professional or the IRS.

UP TO

15%

APPROPRIATE WITHHOLDING

TAX RATE UNDER NEW TAX LAW

Buyer Intends To Use Property as a

Residence?

YES NO

$300,000 and Under

$0

15%

$300,001- $1,000,000

10%

15%

Over $1,000,000

15%

15%