FIRPTA Hazards.(Brief Article)

Your client, a real estate broker, has a problem: A customer just sold a California investment property, and because the customer is a nonresident alien, the IRS and Franchise Tax Board (FTB) are withholding taxes on the sales price.

To help the real estate broker, you will need a general understanding of the Foreign Investment in Real Property Tax Act (FIRPTA). This bill provides for a 10 percent withholding of the gross sales price of U.S. real property interests for sellers who are nonresident aliens or certain foreign trusts. A similar California tax provision provides for a 3 1/3 percent withholding. Since the tax is based on total proceeds, it often exceeds the …