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Increased Withholding Due to Protecting Americans from Tax Hikes Act of 2015

Pursuant to the Protecting Americans from Tax Hikes Act of 2015, there will be changes to the Foreign Investment in Real Property Act of 1980, commonly referred to as “FIRPTA”, effective for transactions closing on or after February 16, 2016.

For transactions where the seller is not exempted from the application of FIRPTA and the “amount realized”, as defined by the statute, (but generally the contract sale price), exceeds $1,000,000, the buyer is obligated to withhold and pay to the IRS, 15% of the amount realized. This increased withholding amount applies to transactions that close on or after February 16, 2016, regardless of when the contract may have been executed.

Existing rules for transactions where the amount realized is $300,000 or less and the transferee will use the premises as a home (no withholding necessary) and where the amount realized is in excess of $300,000 but does not exceed $1,000,00 (10% of the amount realized to be withheld), remain unchanged.

As always, reference to the statute is recommended for more specific guidance as to the definition of terms as well as qualification for exemptions from the application thereof.