WHAT IS FIRPTA
FIRPTA stands for “Foreign Investment in Real Property Tax Act” of 1980. Contrary to popular belief, this act is not a tax at all; it is a withholding. This withholding was designed by the U.S. Internal Revenue Service (IRS) to ensure foreign owners of U.S. property pay their share of taxes on the profits (or gain) when they sell.
WHO IS RESPONSIBLE FOR THE WITHHOLDING
FIRPTA regulations require that a buyer withhold 15% of the gross purchase price of the property, at the time of closing, when they purchase U.S. real property from a foreign person.
WHO IS CONSIDERED A FOREIGN PERSON
You are considered a foreign person if you, the “Seller”, of U.S. real estate are a non-resident individual, a foreign corporation that has not made an election to be treated as a domestic corporation, a foreign partnership, a foreign trust, or a foreign estate.
Please note, a resident alien, electing to be treated as a U.S. resident, is NOT considered a foreign person according to FIRPTA regulations.
WHAT IF THE BUYER DETERMINES THE SELLER IS NOT A FOREIGN PERSON?
A Seller can complete a Certification of Non-Foreign Status. The Buyer will retain this certification for their records. Withholding is not required for this type of transaction.
WHAT IF THE BUYER DETERMINES THE SELLER IS A FOREIGN PERSON?
The Buyer should withhold 15% of the gross purchase price unless an exception applies and the Withholding may be reduced. All funds must be submitted in a timely manner or be subject to penalties.
WHAT IS CONSIDERED A TIMELY MANNER?
WHAT IF THE FUNDS ARE NOT SUBMITTED ON TIME?
Interest and penalties will be assessed beginning on the 21st day after the date of transfer and ending on the day the payment is received by the IRS. These fees are payable by the Buyer.
ARE THERE EXCEPTIONS TO THE 15% WITHHOLDING?
No withholding is required if the final purchase price is $300,000 or less and the Buyer will reside in the property 50% of the time it is in use during each of the first two 12-month periods following the date of transfer.
If the purchase price is $300,001 to $1,000,000 and the Buyer has definite plans to reside in the property, the 15% can be reduced to 10%. If the purchase prices is over $1,000,000 the full 15% is required regardless of the Buyer’s occupancy declaration.
Sellers can also obtain a Withholding Certificate from the IRS, reducing or excluding the required withholding. Contact us for additional exceptions that may apply.
HOW DOES A WITHHOLDING CERTIFICATE WORK?
According to FIRPTA regulations, the amount of tax required to be withheld cannot exceed the maximum tax liability of the Seller. Often times, the actual tax liability is far less than the required 15%. Upon receipt of the Withholding Certificate, the IRS can agree to an amount less than the standard withholding amount.
WHAT EXACTLY DOES FIRPTA SOLUTIONS, INC. DO?
FIRPTA Solutions, Inc. has a team of professionals dedicated to these types of transactions. We guide you through the maze of FIRPTA expertly assisting you with all of the required forms, affidavits, and certificates. We specialize in developing, submitting, and tracking documentation for a reduced or excluded withholding amount. We monitor the process until every box is checked. Then we prepare the tax return to report the sale as required by the IRS.
WHAT IF I ALREADY HAVE AN ACCOUNTANT OR CPA?
Great! We often work alongside other professionals. The FIRPTA process has a lot of parts to it. We do not require you to use us for all of them. We will work with your team to fill in the gaps.
WHAT ELSE DO I NEED TO KNOW?
Applying for an ITIN is not optional. Effective November 4, 2003 all Buyers and foreign Sellers of U.S. real property interests are required to provide their names, addresses, and U.S. tax identification numbers on Withholding tax returns, applications for Withholding Certificates, and Notices of Non-Recognition, or elections under sections IRC 897(i) when disposing of a U.S. real property interest.
WHAT IF I DON’T HAVE A US TAX ID?
Not to worry! Our team has two certifying agents on staff. We can certify your identity and complete all the necessary documentation for you to obtain your U.S. tax payer identification number.
Additional questions? Contact us. We offer a FREE initial consultation.