Real Estate: tax hikes due to FIRPTA changes & how to avoid them
FIRPTA is the Foreign Interest In Real Property Tax Act and became law to force foreign sellers of U.S. real property to pay tax on gain from sales. Without FIRPTA changes, sellers would pocket the proceeds and remove themselves from the U.S. and its taxing jurisdiction. FIRPTA was designed to cause foreign sellers to file U.S. returns and report any gain.
The 2015 statute increased the withholding obligation imposed on buyers in a transaction where a seller is a foreign person. The ten percent (10%) rate is increased to fifteen percent (15%) in any transaction where the buyer is not acquiring a principal residence from a foreign seller. The fifteen percent (15%) rate also applies if the sales price of a principal residence exceeds $1,000,000.
Exceptions to the increased rate
There are two exceptions to the increased rate of withholding. Where a buyer acquires a principal residence from a foreign seller for a sales price over $300,000 and less than or equal to $1,000,000, the ten percent rate will continue to apply. The acquisition of a principal residence from a foreign person for a sales price of $300,000 or less will not require withholding consistent with past practice. Withholding is also not required if a Seller provides a Withholding Certificate from the IRS which excuses the withholding or the amount realized by the seller is zero.
The effective date is for all closings after February 15, 2016.
It is not uncommon for tax practitioners to uncover transactions where the Foreign Interests in Real Property have not been properly identified. A foreclosure on U.S. real property collateral securing a foreign loan, the arrangement may be subject to taxation under FIRPTA. Consistent with tax treaties, the sale of a real property is taxable by the host country. FIRPTA simply expands the definition to capture transactions that were designed to avoid U.S. tax.
BESS Interconnection: Managing Grid, Cost, and Schedule Risk
For battery energy storage system (BESS) developers, securing equipment and site control is only part of the development equation. A project must also connect to the electric grid, and increasingly, BESS interconnection is one of the biggest sources of schedule, cost, and contractual risk. Key Takeaways This article is Part 3 of our Battery Storage […]
Navigating Director and Officer Liability in Times of Financial Distress
Director and officer liability increases sharply when a company is in financial distress. Decisions that would draw little attention in a healthy business can later be challenged by creditors, shareholders, bankruptcy trustees, and regulators as breaches of fiduciary duty, fraudulent transfers, or oversight failures. Understanding where that exposure comes from, and how to manage it, […]
Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey
For developers pursuing battery energy storage system (BESS) projects, finding the right property is only the beginning. BESS site selection is as much a legal and transactional exercise as a real estate decision, with risk analysis central to the project’s ultimate success. Key Takeaways The core questions for BESS site selection in New York and […]
What Business Owners Get Wrong Before Meeting a Litigation Attorney
What should you expect when meeting a litigation attorney about a business dispute? You should expect to describe the dispute in your own words, hand over the most important documents, flag any deadlines or immediate threats, and leave with a clearer picture of the problem, what information is still needed, and the likely next steps. […]
Arbitration vs. Litigation vs. Mediation: What New Jersey Businesses Should Know Before Signing a Contract
Arbitration resolves disputes privately before an arbitrator whose decision is usually final, while litigation resolves them in court with full rights of appeal. Whether a business ends up in arbitration or litigation is often decided when it signs the contract, long before any dispute arises. Key Takeaways When facing a contract dispute, carefully consider your […]
Can You Own Part of a New Jersey Business Without a Written Agreement?
Can you own part of a business in New Jersey without a written agreement? Yes, it is possible. Under New Jersey’s Uniform Partnership Act, a partnership can arise when two or more people carry on a business as co-owners for profit, whether or not they ever intended to form one. Ownership doesn’t necessarily depend on […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
