FOREIGN SELLERS TAKE NOTE: FIRPTA RATE INCREASE 14:45, March 4, 2016

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FOREIGN SELLERS TAKE NOTE: FIRPTA RATE INCREASE

Effective for all dispositions on and after February 16, 2016:  Recent changes to the Foreign Investment in Real Property Tax Act (FIRPTA) have increased the withholding tax rate on the sale of a U.S. real property interest from 10% across the board to the following tiered approach:

  • Sales Price of $300,000 or less:  If the buyer/transferee will be using the property as his or  her residence, NO WITHHOLDING is due.
  • If the buyer/transferee will NOT be using the property as his or her residence, then the withholding tax rate will be 15%.
  • Sales Price over $300,000-$1,000,000:  If the buyer/transferee will be using the property as his or her residence, then the withholding tax rate will be 10%.
  • If the buyer/transferee will NOT be using the property as his or her residence, then the withholding tax rate will be 15%.
  • Sales Price over $1,000,000:  The withholding tax rate will be 15%, whether the buyer/transferee uses the property as a residence or not.

To qualify as a residence, the transferee must have definite plans to reside at the property for at least 50% of the number of days that the property is used by any person during each of the first two (2) 12-month periods following the date of purchase/transfer.  The number of days that the property will be vacant is not taken into account in determining the number of days such property is used by any person.  A transferee will be considered to reside at the property on any day on which a member of the transferee’s family resides at the property.  Note:  No residence exemption will apply even if the property is acquired by an entity for, or on behalf, of an individual who will use the property as a residence. Also, no residential exception applies to commercial property.  So in all transactions involving commercial property the withholding rate will be 15%.

The new standard form of purchase contract in Colorado does not permit assignment by buyer unless otherwise addressed in the additional provisions.  This means a seller will have greater control over an assignment request if not otherwise addressed in the contract and may withhold permission, particularly if a buyer assignment will trigger the withholding tax of 15%.

You should also be aware that transfers (vs. a sale) from foreign individuals into an entity owned by the same foreign individuals may trigger the FIRPTA Withholding at 15%.  Do not confuse FIRPTA, which applies solely to non-U.S. citizens/entities, with the 2% State of Colorado withholding.  Colorado’s 2% withholding may be applicable to both Non-U.S. and U.S. citizens/entities alike who are not otherwise exempt.  Garfield & Hecht, P.C. represents hundreds of valued foreign clients and is able to assist with your sale, transfer, and potential FIRPTA implications.  If you have FIRPTA questions or needs, please contact one of the attorneys listed here:

Ronald Garfield, phone (970) 925-1936; email: moc.t1573614372hcehd1573614372leifr1573614372ag@dl1573614372eifra1573614372g1573614372, Aspen

Chris J. LaCroix, phone (970) 925-1936; email: moc.t1573614372hcehd1573614372leifr1573614372ag@xi1573614372orcal1573614372c1573614372, Aspen

Kursten L. Canada, phone (970) 949-1566, e-mail: moc.t1573614372hcehd1573614372leifr1573614372ag@ad1573614372anack1573614372, Avon

William K. Guest, phone (970) 947-1936, e-mail: moc.t1573614372hcehd1573614372leifr1573614372ag@ts1573614372eugw1573614372, Glenwood Springs