FIRPTA - Selling Real Estate as a foreigner

(FIRPTA) is a crucial piece of legislation that foreign investors need to comprehend when engaging in U.S. real estate transactions. A surprising aspect of the law is that although FIRPTA is aimed at ensuring the Seller pays taxes from the sale of Real Estate, the buyer is the withholding agent, that means the buyer must withhold and remit to the IRS any tax withheld within 20 days of closing.

–A person that is required to deduct and withhold the tax, but fails to do so may be held liable for the payment of the tax and any applicable penalties and interest.

–The typical withholding rate at a sale depends on your particular circumstances:

• –When the property will be used by the buyer as a residence, the withholding rate of 10 percent applies provided that the amount realized exceeds $300,000 but does not exceed $1,000,000.
• –In excess of $1,000,000 requires a 15% withholding
• –Therefore, when the property is used as a residence and below $300,000 no withholding is required
• –Not used as a residence = 15% withholding rate

It is important to note that this is the FIRPTA withholding and not the ultimate tax that needs to be paid. It is therefore important to file a tax return and ask for the difference to be returned as a refund.

We assist clients with this process, obtaining a W-7 an ITIN (International tax identification number) and filing a tax return at the end of the year to recover those FIRPTA funds.

Additional possibilities exist to avoid the FIRPTA withholding from the outset, through the filing of a form called 8288-b.

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A 8288-b filing –allows the seller to receive a determination from the IRS on the exact withholding required. However, this takes time and needs to be planned well in advance of the sale of the property.

Disclaimer

The material in this post represents general information and should not be deemed legal advice. Any use of the website DOES NOT create or constitute an attorney-client relationship between German American Real Estate & Immigration Law Center, LLC (law firm) or any employee of or other person associated with the law firm and a user of this website. It is intended as an educational resource for
understanding the laws. Since the law is continually changing, some parts of this website may become outdated before the next update. It is always best to consult an attorney about your legal rights and responsibilities regarding your particular case.