The sale of US real property by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding.
Persons purchasing US real property from foreign persons, certain purchasers’ agents, and settlement officers are generally required to withhold 15% of the amount realized on the sale or disposition. In most cases, the transferee/buyer is the withholding agent. According to IRS.gov, if you are the buyer of US real property, you must find out if the seller is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.
The transferee must deduct and withhold a tax on the total amount realized (usually the gross selling price) by the foreign person on the disposition. The rate of withholding generally is 15%.
Transferees must use Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the acquisition of US real property. This form must be submitted with the required withholding within 20 days of the date of transfer. It is critical for these forms to be prepared correctly as this is the only record the seller will have as proof of funds paid on their account.
FIRPTA Solutions, Inc. can prepare these forms with ease. After they are mailed to the IRS, we will monitor the forms as they flow through the IRS’s system to make sure they are processed in a timely manner. Once received by our office, we will forward them accordingly.