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© 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%




