Under FIRPTA, the buyer must withhold 15% of the amount realized on the disposition of a U.S. real property interest (USRPI) by a foreign seller. The “amount realized” includes:
(principal only),
of any non-cash property transferred, and
by the buyer or to which the property is subject.
The withholding applies broadly to any “disposition”, which includes sales, exchanges, liquidations, redemptions, gifts, or other transfers. If the buyer fails to withhold the required amount, the IRS can hold the buyer liable for the tax, along with potential penalties and interest. This makes it critical to determine whether the seller is a “foreign person” and whether exceptions apply.