Firpta witholding, remittance, exemptions, calculator services from FIRPTA experts at LBEA in Florida. Foreign Investor Real Property Tax Act (FIRPTA law) | LBEA FIRPTA, International Tax and Accounting

FOREIGN INVESTORS REAL PROPERTY TAX

WHAT IS FIRPTA?

Foreign Investor Real Property Tax Act (FIRPTA) requires that any disposition of a U.S. real property interest made by a foreign investor be subject to withholding tax. The buyer or seller can hold up to 15% (individual) or 21% (business) of the sale of the real property interest. A disposition may also include a gift, exchange, liquidation or other type of transfer. In addition, a timeshare, stocks or shares of a US company may be subject to FIRPTA.

CALCULATE YOUR FIRPTA WITHHOLDING

NO WITHHOLDING

If the buyer intends to use the property as his residence and the selling price is $300,000 or less then there will be no withholding. Even if there is no FIRPTA WITHHOLDING, you are still required to report the sale. NEED HELP TO APPLY FOR YOUR US TAX ID NUMBER AND/OR FILE REQUIRED TAX?

Contact our FIRPTA EXPERTS

FIRPTA COMPLIANCE

Exemption

Does it apply to you?
Sale Price is less than $300,000 Buyer signs affidavit of Exemption. Seller is required to file a Federal Tax Return the following year.

Remittance

When to fill?
Send 15%(Individual) or 21% (Corporation) to the IRS of the amount realized on the sale(usually the gross selling price). It must be filed no later than 20 days after the closing date. File Federal Tax Return the following year to claim withholding less tax liability.

Request a Withholding Certificate

We can help you!
Withholding is kept in an escrow account with the closing agent until IRS responds to application for reduced withholding. (This process takes between 90 to 120 days) Must be filed no later than the closing date. File Federal Tax Return the following year to claim withholding less tax liability.

FIRPTA SERVICES

Application for an ITIN (Individual Tax Identification Number)

A tax processing number issued by the IRS to register and identify the seller’s withholding amount when filing U.S. Tax.

Processing for U.S. Withholding from Foreign Persons

FIRPTA requires Forms 8288 and 8288-A when transactions occur with Foreign Persons involving dispositions of U.S. real property interest. It is crucial to have a FIRPTA Tax Advisor to fill these forms properly to avoid paying penalties and interest charges from the IRS.

Application for a Withholding Certificate

Form 8288-B – The IRS can Issue a Withholding Certificate to reduce or eliminate withholding on dispositions of U.S real property interest from a Foreign Person.

TALK TO A FIRPTA ADVISOR TODAY!

BUYER VS SELLER

Here’s an example of a FIRPTA sales transaction of real estate property in the United States including a foreign seller and a buyer:

The buyer has agreed to purchase the seller’s property for $350,000. At the time of closing, the buyer has the responsible for FIRPTA withholding of $52,500 at 15% of the sale price. If you fail to withhold, you may be held liable for the tax. The seller may be eligible to reduce his 15% withholding if certain requirements are met. The buyer may want to seek a FIRPTA Tax Advisor to be well informed of how to properly close a sale when withholding from a foreign person.

Benefits for the Buyer: To prevent the buyer from paying penalty and interest charges to the IRS.

Benefits for the Seller: To ensure the appropriate amount is withheld or percentage from the seller at the time of closing.

LBEA will guide you through the process

Here at LBEA, we can guide you with this process, we work hand to hand with multiple closing agents and realtors and as an accounting firm we provide U.S. Income Tax Returns services for Foreign Corporations and Non-Residents. When we receive your withholding statement, we make sure your withholding is properly reported to the IRS, this step is crucial when applying the withholding against any tax owed or receiving a refund.

It’s highly recommended to contact a FIRPTA Tax Advisor, we can help! .
FIRPTA TAX ADVISORS

QUESTIONS AND ANSWERS

Who is responsible for FIRPTA withholding?

A Withholding Agent, any person having the control, receipt, custody, disposal or payment of income that is subject to withholding. Generally, the person who pays an amount to the foreign person subject to withholding must do FIRPTA withholding. The withholding agent can be liable for the full amount of FIRPTA withholding tax required to be withheld, plus penalties and interest, beginning on the 21st day after the date of transfer.

Why do I need a ITIN (Individual Tax Identification Number)?

The IRS requires tax filers to have a ITIN or a US Social Security Number to process your returns.
We can apply for an ITIN if you are a foreign person and have not been assigned a tax identification number by the IRS or a US Social Security Number.

Are there exceptions to the 15% for Foreign Persons?

Option A – If the sales price is less than $300,000 and the buyer signs an affidavit, the seller can eliminate the withholding. The affidavit must state that the buyer must reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.

Option B – The amount the transferor realizes on the sale of a U.S. real property interest is zero or less than the required withholding at 15%. An example in real estate, a seller has a sales contract for $400,000 with only $100,000 gain on the sale, taxable at a maximum capital tax gain of 20%. FIRPTA requires the buyer to withhold $60,000. Applying for a reduced withholding can lower the amount from $60,000 to $20,000 because the tax liability is less than the amount required to be withheld at 15% of the sale price.

What if I already have a sales professional working on my closing?

We often work alongside with other professionals to best meet your needs. We will work with your Sales professionals to process the FIRPTA documents.

How long does it take for the IRS to process an application for a Withholding Certificate?

The IRS will generally act on the applications within 90 days of a complete application. A complete application includes processing of a Taxpayer Identification Number of everyone involved the transaction.

What if the seller is taking a loss on their real property interest?

FIRPTA does not automatically exempt the seller when taking a loss on their Real Property Interest. An application for a withholding certificate with the assistance of a FIRPTA Tax Advisor may reduce the seller’s withholding with the IRS Form 8288-B. The application for withholding certificate must be done before or on the closing date.

Here’s an example: In 2007 a foreign person purchased a Real Estate Property for $350,000. The foreign person sold his Real Estate Property in 2018 for $320,000. The seller recognized a loss of $30,000 from the sale of the Real Estate Property. FIRPTA does not automatically exempt the seller from withholding on the loss of $30,000. At this point, the seller has two options: apply to reduce withholding or pay 15% of the sales price and claim the amount withheld on U.S Tax Return.

A foreign person has a sales contract of a U.S. Sales property for $400,000, with a closing date of June 5. The seller is considering applying for a Withholding Certificate to reduce his tax withholding. By when does the seller have to apply for a withholding certificate?

The seller has until the closing date to apply for a withholding certificate to lower or eliminate the withholding.

I, the seller, sent 15% withholding through FIRPTA, but I did not know about the Withholding Certificate. How do I get my money back?

This is a straightforward process once you have received a withholding statement from the IRS. Our Services extend to provide filing of U.S Income Tax Returns for Non-Residents, here we can file your return to claim the withholding less your tax liability.

FIRPTA