In 2024, the Foreign Investment in Real Property Tax Act (FIRPTA) in the United States increased the withholding rate from 10% to 15%. This change seeks to maintain greater tax fairness for foreign investors and provide new opportunities for those wishing to invest in the U.S. real estate market.

What is FIRPTA?
Before we dive into the details of the change, it’s important to understand what FIRPTA is. The Foreign Investment in Real Property Tax Act (FIRPTA) is a tax law that applies to the capital gains of foreigners who sell real estate in the United States. The purpose of this law is to ensure that nonresidents also pay taxes on capital gains generated by the sale of U.S. real estate, just as U.S. citizens and permanent residents do.

Key Changes to FIRPTA
1. Increased Withholding Rate: Foreign nationals selling property in the United States will now see 15% of the sales price withheld instead of 10%. This change affects both commercial and residential real estate transactions, but there are important exemptions.

2. Residential Exemption: If the property sold is valued at less than $1 million and is used as a personal residence, lower withholding rates will apply, which is a major advantage for investors looking to acquire lower-value residential property.

What does this mean for foreign investors?
Far from being a barrier, this change offers an opportunity to explore new investment strategies. The residential property exemption provides an incentive for foreigners to focus on this type of property, which could result in further growth in the residential market. Furthermore, this adjustment could encourage investors to diversify their portfolios and consider more efficient structures, such as local companies, for their investments, which could generate more favorable tax opportunities.

Positive Impact on the Market
This change fosters greater competitiveness and transparency in the sector, benefiting both local investors and buyers. With the focus on residential properties and an adjustment in tax strategies, foreign investors can continue to take advantage of the dynamic U.S. real estate market, especially in growth areas like Florida.
While the increased retention rate may seem challenging, it also opens up new possibilities. Foreign investors now have the opportunity to optimize their strategies, take advantage of exemptions, and continue participating in one of the most attractive real estate markets in the world.