FIRPTA Flashcards
FIRPTA - FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980
The transfer of a U.S. real property interest by foreign Seller(s) is subject to FIRPTA for income tax withholding.
Advise buyer and seller that failure to comply with IRS FIRPTA withholding may result in the buyer being responsible to pay the entire withholding requirement plus penalties to IRS which could increase an IRS lien being placed against the subject property.
FIRPTA is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate. Under FIRPTA, if you buy U.S. real estate from a foreign person, you may be required to withhold 10% or 15% of the amount realized from the sale. The amount realized is normally the purchase price.
SELLER IS NON-EXEMPT FROM WITHHOLDING IF
- Seller is a foreign individual or married person
- Seller is a Foreign Trust
- Seller is a Foreign Estate
- Seller is Foreign Partnership
- Seller is a Foreign corporation
- Buyer does notintend to occupy the property (hereafter referred to as “non-occupied”)as a principal residence regardless of Sales Price
- Buyer intends to occupy the property as a principal residence and the sales price is $300,001.00 or more.
HOW MUCH DO I HAVE TO WITHHOLD IF THE SELLER IS NON EXEMPT?
The amount of withholding is based upon a percentage of the Sales Price and is
withheld from the Seller at close of escrow as follows:
15% of Sales Price for all non-occupied properties
10% of Sales Price for all occupied properties that are $300,001.00 to $1,000,000.00
15% of Sales Price for all occupied properties that are $1,000,001.00 and up
WHEN AND WHERE DO I SEND THE FIRPTA WITHHOLDING?
100% of the funds withheld must be remitted within 20 days from close of escrow to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
WHAT FORMS DO I NEED FROM THE BUYER?
IRS Forms 8288 and 8288A as applicable must be COMPLETED and signed by the Buyer and submitted along with the tax withholding to the IRS.
Refer the principals to their attorney, tax professional, or to the IRS website at www.irs.govfor tax forms and Publication 515 for assistance.
SELLER IS EXEMPT FROM WITHHOLDING IF:
- Seller is a naturalized U.S. individual or married citizen
- Seller is a resident alien (has been issued a green card by the U.S. Government)
- Seller is a U.S. Corporation
- Seller is a Qualified Foreign Pension Plan
- Buyer intends to occupy the property (hereafter referred to as “occupied”) as a principal residence and the Sales Price is $300,000.00 or less.
- Seller provides a Withholding Exemption Certificate issued by IRS to Escrow prior to close of escrow
WHAT FORMS DO I NEED FROM THE SELLER IF THE SELLER IS EXEMPT?
Seller completed Non-Foreign Seller Affidavit
Review the Purchase Contract and local company FIRPTA guidelines for required forms
Form 8288B Application For A Withholding Certificate*
A withholding certificate may be issued by the IRS for either no or reduced withholding if:
a.The amount that must be withheld would be more than the Seller’s maximum tax liability, or
b.Withholding of the reduced amount would not jeopardize collection of the tax,
c.The exemption from U.S. tax of all gain realized by the Seller, or
d.An agreement for the payment of tax providing security for the tax liability, entered into by the Buyer or Seller.
For further information and to file an application direct sellers and buyers to IRS at: https://www.irs.gov/uac/Publication-515,-Withholding-of-Tax-on-Nonresident-Aliens-and-Foreign-Entities
WHAT IS FIRPTA?
Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) as
amended by Protecting Americans from Tax Hikes Act of 2015 (PATH)
An imposed a tax on gain realized upon the transfer of a United States real property
interest by a foreign person (the “seller”). For purposes of FIRPTA, a foreign person is a:
• Non-resident alien individual
• Foreign corporation
• Single member LLC
• Foreign partnership, trust, or estate
It does not include a resident alien (green card holder).
WITHHOLDING REQUIREMENTS
For transactions closing on or after February 16, 2016, Section 324 of the
PATH Act changed some FIRPTA withholding rates as follows:
If Buyer DOES NOT intend to reside at the property
• Any Sales Price the withholding rate is 15%
If Buyer DOES intend to reside at the property
• Sales Prices of $0 to $300,000 – zero withholding
• Sales Price of $300,001.00 to $1,000,000.00 - 10% withholding
• Sales Price of $1,000,001.00 and up - 15% withholding
If the property will be acquired by buyer with intent to reside:
• Sales Prices of $0 to $300,000 –zero withholding with affidavit
• Sales Price of $300,001.00 to $1,000,000.00 - 10% withholding with affidavit
THE SELLER
• Resident Alien - Not a citizen but has a U.S. Permanent Resident Card “green card”.
• Non-Resident Alien - A Non-U.S. citizen who doesn’t pass the Green Card or
Substantial Presence Test:
• 31 days during the current year, and
• 183 days during the 3-year period that includes the current year and the 2 years immediately
before that, counting:
All the days you were present in the current year, and
1/3 of the days you were present in the first year before the current year, and
1/6 of the days you were present in the second year before the current year.
• Disregarded Entity - A business entity which elects not to be separate from its owner for
tax purposes. Single-owner business entity that is not a corporation. IRS disregards a
single-owner entity and looks to the single owner.
• Foreign Corporations/partnerships/trusts/estates – For purposes of FIRPTA, an entity
which is incorporated (formed) under laws of a different nation.
EXEMPTIONS
The buyer must withhold tax on a real estate transaction unless:
• The seller provides a completed Non-Foreign Affidavit, or
• The buyer intends to reside on the property and the purchase price does not
exceed $300,000 and provides an affidavit affirming same, or
• The Seller is a U.S. real property holding corporation, or
• The Seller is a Qualified Foreign Pension Fund, or
• The Seller provides a Withholding Certificate issued by IRS.
WHAT TO SEND TO THE IRS
- Remittance Cover Letter
- 8288 – Original completed by Buyer
- 8288-A – Copies A & B (no signatures required)
- Check in the amount of withholding payable to Internal Revenue Service
- If sellers are married filing together – single package
- If sellers are tenants in common, separate packages for each seller
FILING REQUIREMENTS
- Withholding Agent is always the Buyer
* Withholding must be sent to the IRS within 20 days of close of escrow
PENALTIES FOR FAILING TO COMPLY
Failure to comply with the withholding requirements
will result in:
• Buyer being responsible for payment of the
withholding amount
• Buyer will be charged interest on withholding from
date amount was due
EXCEPTION - The Seller may apply for a Withholding Certificate directly
with the IRS prior to close of escrow. If the IRS issues a withholding
certificate establishing that the seller does not owe any tax, then the
Buyer does not have to withhold any tax from the Seller.
SELLER AFFIDAVIT OF NONFOREIGN STATUS
• Required to be completed
by every seller
• Remember, this could mean a vested owner deeding off on a refinance transaction as well