Luxury Home Magazine

Title and Escrow is our business. Hawai‘i is our home. Visit TGHawaii.com MIKE B. PIETSCH CHIEF OPERATING OFFICER TITLE GUARANTY “Title Guaranty understands how FIRPTA and other changes set in motion by the PATH Act can affect your investment. Our seasoned Escrow Officers are here to assist buyers and sellers in navigating through these complex regulations.” P R E S E N T E D B Y T I T L E G U A R A N T Y CHANGES EFFECTIVE FEBRUARY 2016 FIRPTA WITHHOLDING - 10% TO 15% Understanding FIRPTA As foreign interest in Hawai‘i real estate continues its upward trend, changing tax regulations as they apply to this demographic have become exceedingly important. In most local real estate transactions, The Foreign Investment in Real Property Tax Act of 1980, also known as FIRPTA, refers to a withholding requirement that arises when the seller of a real property interest in Hawai‘i is a “foreign person.” In general, a foreign person is defined as a nonres- ident alien individual or a foreign corporation, partnership, trust or estate. Under FIRPTA, the buyer in a real property transaction with a foreign seller is required to withhold and pay to the Internal Revenue Service a percentage of the amount realized by the seller in the transaction, unless an exemption applies. The amount realized is typically the gross sales price. Prior to December 18, 2015, the percent- age set forth in the statute was 10%. The most common exemptions are if the seller provides a certification or affidavit of non-foreign status to the buyer, or if the amount realized did not exceed $300,000 and the buyer is an individual who is acquiring the property for use as a residence. The use as a residence test is based on the definite plans of the individual buyer or immediate family member to reside at the property for at least 50% of the number of days that the property is used by any person during the first two years following the date of transfer. 2016 Changes to FIRPTA On December 18, 2015, President Obama signed the Protecting Americans From Tax Hikes Act of 2015 (PATH). Among its numerous sections is a change that increases the FIRPTA withholding rate from 10% to 15% on all transactions closing after February 16, 2016. The existing exemptions have not changed. However, there is an exception to the 15% increase for transactions where the amount realized is greater than $300,000 but does not exceed $1,000,000 and the individual buyer is acquiring the property for use as a residence, then the withholding rate will remain at 10%. FIRPTA stands for the Foreign Investment In Real Property Tax Act of 1980, which is codified in 26 U.S.C. §1445 and the accompanying Treasury Regulations §1.1445-1, et seq. For more information or to read the full details on FIRP- TA changes, please refer to the statute. *Special rules may also apply to limited liability companies owned by foreign persons. **The “use as a residence” test is described in Treasury Regulation §1.1445-2(d)(1) ***As with any tax regulation, there are complexities that should be thoroughly vetted by a tax professional such as an accountant or tax attorney. The information is not intended to be used as a guide for anyone’s tax planning, or as a way to avoid the payment of taxes. 10% 15% If sales price is greater than $1,000,000, the FIRPTA withholding amount is ... If sales price is greater than $300,000 but $1,000,000 or less, the FIRPTA withholding amount is ...