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    FIRPTA withholding

    In 1980 the US initiated FIRPTA (Foreign Investment in Real Property Tax Act).

    It states that the US will enforce a capital gains tax on sales of properties within its boundaries.

    Additionally, the US will not sign a tax treaty with any country disregarding this section. This act overpowers existing treaties.

    During a sale, the transfer purchasing from a foreign entity must withhold taxes from the sum of sale, at a rate of 15% (as of 2016) and pay it to the IRS.

    This obligation may be transferred to a withholding agent, which is usually the title company.

    The IRS thus guarantees that the foreign entity does not avoid US tax laws.

    Several limitations for withholding at source exist, for instance, if the transferee uses the property for the purpose of residence, and the sale sum does not exceed $300,000.

    Tax is imposed on the sale sum and does not incorporate the depreciated cost of the asset or the cost of finalizing the contract, and thus a foreign entity may request a rebate.

    The foreign entity may also file Form 8828-B with the IRS and request a decreased or null withholding.

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