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What does FIRPTA mean for a Buyer?

The Foreign Investment in Real Property Transfer Act (FIRPTA) requires any buyer of a U.S. real property interest to withhold 15% of the amount realized by a foreign seller.

What is the purpose of FIRPTA?

FIRPTA is a federal tax law that ensures that foreign sellers pay income tax on the sale of real property in the United States.

How does FIRPTA work?

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 15% of the amount realized from the sale. Along with the form, you submit 15% withholding.

Who pays FIRPTA Buyer or Seller?

The basics: What FIRPTA is and how it works in most cases, the buyer is responsible for making sure the IRS receives its money within 20 days. The buyer usually is the withholding agent and is ultimately responsible for sending the funds to the IRS.

Which payments are subject to withholding? Where do I report withholding?

Sales proceeds realized upon the disposition of a U.S. real property by a foreign person are subject to FIRPTA withholding. Note: Other types of income payments to foreigners may be subject to withholding if income is from sources within the United States, and it is fixed or determinable, annual or periodical (FDAP) income. Examples of such payments are: dividends, interest, real property income such as rents, and royalties.

FIRPTA withholding is required to be submitted to the IRS within 20 days of the closing together with IRS Form 8288, U.S. Withholding Tax Return for Disposition by Foreign Persons of U.S. Real Property Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property

Is FIRPTA Withholding Refundable?

When the certificate is received, the tax withheld is refunded to your client by the closing agent, in accordance with the instructions in the certificate – i.e most, or all, of the FIRPTA withholding tax is refunded to your client. This process can be completed in about 3 months

Who Fills out Form 8288?

Buyer

When real estate is purchased from a non-US person, the buyer is required to file Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, to report and pay the FIRPTA tax withholding. Form 8288 is due within 20 days of the sale

Are Individuals Subject to FIRPTA?

United States tax law requires that all persons, whether foreign or domestic, pay income tax on the disposition of U.S. real property interests. i.e. FIRPTA applies in nearly all transactions, residential and commercial, in which a foreign owner of a U.S. real property interest sells such interest.

Who is a Foreign Person?

A foreign person is defined for FIRPTA purposes to mean any person other than a United States person. A resident alien is defined as 1) one who has lawful permanent resident status (green card holder), 2) meets the substantial presence test (183 day test), or 3) made a first year election to be taxed as U.S. resident

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How do you avoid FIRPTA?

The only other way to avoid FIRPTA is via a withholding certificate. If FIRPTA withholding exceeds the maximum tax liability realized on the sale of the real property, sellers can appeal to the IRS for a lower withholding amount.

Are Tax ID Numbers Required for all Parties?

Yes. IRS forms submitted with FIRPTA withholding require identifying numbers for the buyer and the seller. If your foreign seller does not have a U.S. tax ID number, an application for ITIN (form W-7) must be submitted together with the withholding forms.

Shared By: Vishal Savadiya, Tax Supervisor at Infinity Globus
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