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Homestead and Other Exemption Information

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The Protecting Americans from Tax Hikes Act of 2015 (2015 Path Act), signed into law on December 18, 2015, increased the rate of withholding from 10% to 15% on the disposition of US real property by non-US citizens who are not permanent resident green card holders under the Foreign Investment in Real Property Act of 1980 (FIRPTA) subject to the guidelines provided below.

The basic exemption to withholding still applies:

  • If the amount realized in your transaction (generally the sales price) is $300,000 or less, and the property will be the Transferee’s primary residence (as provided for in the current regulations), no sums need be withheld or remitted. Please note both the amount and the residency requirement must be met for the exemption to apply.

The changes resulting from the PATH Act have modified the application of FIRPTA as follows:

  • If the property will not be used as the Transferee’s primary residence as set forth under I.R.S. guidelines, the withholding rate is 15% regardless of the amount realized.
  • For transactions where the amount realized is in excess of $300,000 but does not exceed $1,000,000, AND the property will be the Transferee’s primary residence, then the withholding rate is 10% on the amount realized.
  • If the amount realized in your transaction is in excess of $1,000,000, then the withholding rate is 15% on the entire amount realized, regardless of use/occupancy by the Transferee.

Please be aware that the new changes apply for transactions closing on or after February 16, 2016. Remember, the above referenced change is only a change in the percentage to be withheld on covered transactions, meaning dispositions of real property by non-US citizens, non-permanent resident green card holders and others who are not exempt from FIRPTA.