Are You A Foreign Buyer Or Seller?
I AM A...
Let’s pretend you just purchased a home from a foreign individual. You paid $450,000 for your dream home and can’t wait to start making it your own. Just as yo get settled in, you receive a letter from the IRS demanding payment in the amount of $67,500. The letter mentions FIRPTA. What is FIRPTA?
FIRPTA, which stands for the Foreign Investment in Real Property Tax Act of 1980, is a withholding tax. It was designed to ensure foreign owners of US property pay their share of taxes on the profits (or gain) when they sell. In this example, since you purchased real estate from a foreign seller, you were responsible for withholding 15% from the seller’s proceeds (based on the gross purchase price of the property) at the time of closing. With help from your closing agent, this withholding tax should’ve been submitted to the IRS within 20 days.
There are exceptions to this rule. Most notably, if you purchase a home for $300,000 or less and are willing to sign an affidavit that you or your family members will reside in the property 50% of the time it is in use during each of the first two 12-month periods following the date of transfer, you can be exempt from withholding. In this same example, if the purchase price is over $300,000 but less than $1,000,000, the withholding can be reduced from 15% to 10%.
Once you realize your seller is foreign, call us regarding your next step. FIRPTA Solutions Inc. will expertly prepare all of the required documents needed to ensure a smooth FIRPTA closing, eliminating potential penalties or interests for you.
The Foreign Investment in Real Property Tax Act of 1980 is not a tax at all, it’s a tax withholding. This means, if you are a foreign seller, the IRS will “hold” 15% of the gross selling price of your property until you file a US tax return that calculates the actual tax due, if any.
According to FIRPTA rules, the amount of tax required to be withheld cannot exceed the maximum tax liability owed by the seller. Often times, the actual tax liability is far less than the required 15%. For example, if you are selling the property for less than what you paid for it, you will realize a loss, not a gain.
FIRPTA Solutions, Inc. can help you apply for a withholding certificate asking the IRS to reduce your 15% withholding down to the actual taxes owed. Upon receipt of the withholding certificate application, the IRS can agree to an amount far less than the standard withholding amount – sometimes even ZERO! The application must be made no later than the day of closing and can take up to 90 days to process.
FIRPTA Solutions, Inc. has a team of professionals dedicated to these types of transactions. They guide you through the maze of FIRPTA, expertly assisting you with all of the required forms, affidavits, and certificates. They are skilled at submitting the paperwork for a reduced or excluded withholding amount.