What is the highest percentage buyers must withhold for federal income tax purposes when a foreign person sells U.S. real estate according to FIRPTA?

When a foreign person sells U.S. real estate, the Foreign Investment in Real Property Tax Act (FIRPTA) requires buyers to withhold a percentage of the sale price for federal income tax purposes. The correct percentage that buyers must withhold is 15%. This withholding is designed to ensure that the foreign seller pays any taxes owed on the gain from the sale, as it may not be feasible for the IRS to collect those taxes directly from a foreign individual.

This requirement is particularly important because it helps the IRS enforce tax obligations on foreign sellers who may not have a permanent presence in the United States. The withholding method serves as an effective means to secure revenue that might otherwise be difficult to collect, ensuring compliance with U.S. tax laws related to property transactions involving foreign nationals. Thus, understanding and applying the 15% withholding rule is crucial for compliance with FIRPTA.