2016 CHANGE TO THE FOREIGN INVESMENT THAT WILL AFFECT CONDO SELLERS IN DOWNTOWN LOS ANGELES

CHANGE TO THE FOREIGN INVESTMENT ACT by Juliana Tu of Viva Escrow!

Here are the major changes in the Foreign Investment Act in 2016 that will affect foreign based sellers of condos and lofts in Downtown Los Angeles. Like always, we get very nervous when Congress and the government start tinkering and enacting new tax changes and we the taxpayor, consumer, or business entities get caught scrambling to adjust. This is just so in the case of the legislation that changes the FIRPTA – Foreign Investment in Real Property Act. In December the 2015 Tax Act had an inclusion that changed the withholding requirements for foreigners who invest in the U.S. Effective February 17, 2016 the FIRPTA will have the following substantial changes:
1.If you are a foreigner and the property that you sell is over $1,000,000, then your withholding amount will be 15% of the sales price.
2.If you are a foreigner and the property that you sell is less than $1,000,000 AND the Buyer intends to use this as a residence for more than 50% of the time, then the withholding can be reduced to 10%.
3.If you are a foreigner and the property you sell is $300,000 or less AND your Buyer intends to use this as a residence for more than 50% of the time, then the withholding can be fully exempt, as long as the Buyer signs the Buyer’s certification. This DID NOT change from the previous regulations.

There may be only two major changes, but these are HUGE changes for all escrow practitioners in certain areas of California where foreign investments tend to congregate. Try explaining to the foreign investor selling a million dollar home that (1) you need an IRS issued Federal Tax Identification Number when you sell, and (2) oh, by the way, we need to hold $150,000 from your proceeds. Oh man……