What is FIRPTA?
FIRPTA refers to the Foreign Investment in Real Property Tax Act of 1980 which authorizes the U.S. to tax foreign persons on dispositions of U.S. real property interests.
Who does FIRPTA apply to?
FIRPTA applies to any foreign person that sells or exchanges a U.S. real property interest.
How is the tax imposed?
Section 1445 of the Internal Revenue Code imposes a requirement on the buyer/transferee and certain agents of the buyer to withhold a tax of 10% of the gross sales price of the real estate transaction. The foreign seller/transferor must file a W-7 form with the IRS to obtain a taxpayer identification number (TIN). N, the 10% withholding must be reported and remitted to the IRS using Form 8288 within 20 days after the date of transfer.
What happens if too much tax is withheld?
To claim back any overpaid withholding, you must file a tax return in the year following the transaction to report the sale/transfer and calculate any capital gain and tax due. Any overpayment will be refunded after the IRS has processed your tax return.
What if the buyer/transferee does not withhold any funds pursuant to FIRPTA requirements?
A buyer/transferee who fails to withhold 10% of the gross sales price of the real estate transaction and report and remit it to the IRS using Form 8288 within 20 days after the date of transfer is liable for any uncollected withholding tax as well penalties and interest.
Are there exceptions to the FIRPTA withholding requirements?
Yes. There are a number of exceptions to the withholding requirements. Some of the most common exceptions are listed below. For a comprehensive list of the exceptions, please visit http://www.irs.gov/Individuals/International-Taxpayers/Exceptions-from-FIRPTA-Withholding.
- The seller/transferor provides a certification stating, under penalties of perjury, that he/she is not a foreign person. The certification must contain the seller/transferorâ€™s name, TIN, and home address.
- The buyer/transferee acquires the property for use as a home and the amount realized is not more than $300,000. The buyer/transferee or a member of his/her family must have definitive plans to reside at the property 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.
- An IRS withholding certificate is issued.
- The amount that the seller/transferor realizes from the disposition is zero.
- The seller/transferor provides written notice that no recognition of any gain or loss on the transfer is required because of a non-recognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty.
The statements made herein are for informational purposes only
and are not intended as professional legal or tax advice.