New York Foreign Investment Lawyer Natalia Sishodia Explains FIRPTA and Its Impact on Real Estate Transactions
The Foreign Investment in Real Property Tax Act, commonly referred to as FIRPTA, is a critical piece of legislation that significantly impacts the sale of U.S. real estate by non-citizens. In a recent article, New York foreign investment lawyer Natalia A. Sishodia (https://sishodia.com/what-is-firpta-foreign-investment-in-real-property-tax-act/) of Sishodia PLLC clarifies how FIRPTA functions, who it affects, and why understanding it is important for both buyers and foreign sellers.
FIRPTA imposes a withholding tax on foreign persons selling U.S. real estate. Natalia A. Sishodia, a trusted New York foreign investment lawyer, emphasizes that compliance with FIRPTA is not optional and that it plays a central role in international property transactions. The law requires that up to 15% of the property sale price be withheld and remitted to the Internal Revenue Service by the buyer. This mechanism ensures the collection of capital gains tax from foreign sellers, something that was not enforced before the law was enacted in 1980.
As a New York foreign investment lawyer with a deep understanding of cross-border real estate deals, Natalia A. Sishodia highlights FIRPTA’s broader implications. The law applies to residential and commercial property sales, as well as transactions involving interests in corporations holding real property. The IRS determines the final tax liability when the seller files a U.S. income tax return. If the withheld amount exceeds the seller’s actual tax liability, a refund may be issued. However, Sishodia notes that sellers must meet all the procedural requirements to avoid delays or penalties.
In her explanation of FIRPTA, Natalia A. Sishodia outlines how U.S. Real Property Interests (USRPI) go beyond physical assets like buildings and land. These include stakes in domestic corporations, interests in mines or wells, and even certain types of equipment tied to real estate. The law ensures that these less obvious property interests are also subject to taxation when sold by foreign entities. According to Sishodia, this wide scope reinforces the importance of clearly identifying property types and ownership structures before finalizing any sale.
One of the key historical contexts Sishodia provides is the motivation behind FIRPTA’s creation. Before the law was enacted, foreign sellers were not taxed on the profits made from selling U.S. real estate. Congress addressed this gap by amending the Internal Revenue Code to include a tax on the gross amount realized by the foreign seller. This change aligned foreign sellers’ obligations more closely with those of U.S. taxpayers, making property transactions more equitable.
Buyers also carry legal responsibilities under FIRPTA. Natalia A. Sishodia explains that the buyer must withhold a portion of the purchase price and submit it to the IRS using Form 8288 within 20 days of the transaction. The withholding rates vary: no withholding may be required if the property is sold for less than $300,000 and intended for personal residence, while properties sold for over $1 million are subject to a full 15% withholding. Failing to comply with these requirements can result in substantial penalties.
There are, however, ways to reduce or eliminate the FIRPTA withholding obligation. Natalia A. Sishodia discusses how sellers can apply for a withholding certificate using IRS Form 8288-B. This application must be filed before closing and must include details of the transaction, including the sales contract and other supporting documents. If approved, the IRS may allow for a lower withholding amount if the actual tax owed is less than the standard 15%. Sishodia underscores that early preparation and submission are key, as IRS processing may take up to 90 days.
A notable quote from Natalia A. Sishodia in the article states, “Understanding FIRPTA requirements is essential for both buyers and foreign sellers in these transactions to avoid complications.” Her explanation provides clarity on a topic that is often overlooked but has serious consequences if misunderstood or mishandled.
Sishodia also points out that FIRPTA continues to be relevant, even decades after its introduction. It ensures that foreign investors contribute to the U.S. tax system when profiting from domestic real estate sales. The withholding acts as a safeguard, particularly in transactions involving foreign corporations or individuals where tracking post-sale tax obligations may be more challenging.
Those involved in real estate transactions with foreign individuals or entities are encouraged to educate themselves about FIRPTA and to seek proper legal guidance early in the process. While certain exemptions may apply, proper documentation and strict adherence to the rules are non-negotiable. FIRPTA’s requirements exist to enforce fairness in the U.S. real estate market, and Natalia A. Sishodia’s insights serve as a valuable guide to navigating these rules.
Understanding FIRPTA and its tax implications is vital in a global real estate market like New York City’s, where international buyers and sellers are common. Those who do not take the necessary steps to comply may face unnecessary delays or financial setbacks. Staying informed and proactive is essential for successful real estate transactions involving foreign parties.
About Sishodia PLLC:
Sishodia PLLC is a New York-based real estate law firm providing legal guidance for individuals and businesses in the purchase and sale of residential and commercial properties. Led by attorney Natalia A. Sishodia, the firm focuses on smooth transaction execution while complying with relevant local and federal laws such as FIRPTA. The firm assists both domestic and international clients with navigating U.S. property regulations.
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