FIRPTA Change Necessitates Revision to AAR Contracts

The Protecting Americans from Tax Hikes Act (the “PATH Act”) was signed into law on December 18, 2015.

Included in the PATH Act is a provision modifying the Foreign Investment in Real Property Tax Act (“FIRPTA”). The modification increased the tax withholding from 10% to 15% in certain transactions. However, 10% rate of withholding still applies if: (1) the amount realized for the property is less than $1 million; and (2) the property is acquired by the transferee as a residence. The prior exception from FIRPTA (if the amount realized for the property is less than $300k and the property is purchased as a personal residence) is still effective.

The PATH Act is effective 60 days after the date of enactment, which is February 16, 2016.

Because of the federal law change to FIRPTA, the FIRPTA provision in AAR’s purchase contracts (residential, commercial and vacant land) were revised to reflect the change. If you are dealing with a FIRPTA transaction, the parties should be advised to consult a tax professional.


Nikki J. Salgat, Esq. is associate counsel to the Arizona Association of REALTORS®.

This article is of a general nature and reflects only the opinion of the author at the time it was drafted.  It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

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