Foreign Investors Entering Into Like-Kind Exchange Transactions- What About the 15% FIRPTA Withholding Tax (Part 2)?

By Michael W. Brooks, Esq. As discussed in Part 1, we know Foreign Investors are permitted to enter IRC Section 1031 (like-kind exchange) transactions provided certain conditions are met.  The Foreign Investor can avoid (really delay) paying tax on the sale of the first property (the relinquished property), provided the Foreign Investor identifies a qualifying replacement property within 45 days of the sale and completes the purchase of the replacement property within 180 days of the sale.  But what about the 15% (of the gross sales price) non-US seller withholding tax?  Must the escrow company withhold 15% of the sales price because the seller is foreign (even though the foreign party is entering into a 1031 like-kind exchange)?  The answer is yes- 15% of the gross sales price must still generally be withheld at the time of closing, and not distributed to the Foreign Investor or to the 1031 Accommodator.  This is where 1031 transactions and the rules…

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