What rules apply to a buyer who is purchasing property in Texas from a foreign seller?

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  • What rules apply to a buyer who is purchasing property in Texas from a foreign seller?

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) requires buyers in certain transactions involving foreign sellers to withhold up to 15% of the amount realized by the foreign seller for federal taxes. The amount realized is usually the sales price. Particularly:

  • If a property’s sales price is $300,000 or less and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, nothing needs to be withheld and no reporting is required.
  • If the property’s sales price is between $300,001 and $1,000,000 and the buyer or a member of the buyer’s family has definite plans to reside at the property for at least half the year for each of the two years following the closing, 10% of the sales price must generally be withheld and reporting is required.
  • If neither situation applies, 15% must generally be withheld and reporting is required.

The buyer must use IRS Form 8288 and IRS Form 8288-A to report and pay the tax.

Source: TAR

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