FIRPTA Foreign Investment in Real Property Tax Act

FIRPTA Foreign Investment in Real Property Tax Act

FIRPTA Foreign Investment in Real Property Tax Act

The United States Federal Tax Law requires that a foreign citizen who sells real estate owned in this country pay taxes on the profit of such sale. To insure that the tax is paid, 15% of the proceeds at closing are withheld and transferred to the United States Treasury. The 15% withholding is mandatory if the seller is a foreign person. (A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.)

The following ONLY applies to homes priced under $300,000. It does not apply to land.
There is a possible waiver available if the buyer signs and states that the home will be the buyer’s primary residence for the next two years. The part everyone forgets about the waiver is, if the seller does not file a tax return and pay the capital gains on the property, the IRS will send a notice of deficiency for the 15% of sales price to the buyer. That deficiency is due in 30 days. If the new buyer can’t pay the tax due, IRS will place a lien on the property and/or sell the property to get the tax owed. This is an enormous risk for the buyer.

At the time of closing the seller must have an ITIN or an application to get one. If they do not the IRS does not have to issue any refunds at a later date.

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. This number is used to record the sale. If a seller needs an ITIN they must complete the W7 application with a Certified Copy of their passport. Click here for the IRS page with Form W7 and instructions. One can apply on line for the ITIN (for a fee, 3rd party company): https://www.itinformw7.com/Application.html

(Certification can only be done by their passport office or a Certified Acceptance Agent) The fee for this process at the time of writing is $200 per application.

Each individual must file a tax return the following January to either claim a refund or pay the balance due. For more information reporting and paying taxes: https://www.irs.gov/individuals/international-taxpayers/reporting-and-paying-tax-on-u-s-real-property-interests

Two forms are used for reporting your sale to the United States Treasury. These are Form 8288 Form-8288 and Form 8288A Form-8288a. The title company conducting the closing should file these forms with the IRS at closing. You should be sure that the title company has your Social Security Number or ITIN to submit with these forms. If you are selling the property without a real estate broker you should check with the seller to be sure that they complete the forms necessary and send the withholding to the IRS. They should send you a copy of the Forms 8288 and 8288A so you can file your tax return for a refund.

Another form that may be relevant is Form 8821, Tax Information Authorization, which will designate the escrow company withholding the seller’s funds.

This is a helpful site with information on How to get your FIRPTA Tax Withholding back. How to get your FIRPTA Tax Withholding back

The IRS (Department of Treasury) has written a page on their website called Road Map to Regulations FIRPTA Road Map to Regulations

This page may have answers to many of your questions.

FIRPTA Process Overview

A Non Resident Alien may be entitled to a refund for taxes withheld under section IRC § 1445 by filing Form 1040NR, U.S. Nonresident Alien Income Tax Return. Click here for Form 1040NR, U.S. Nonresident Alien Income Tax Return Instructions and to download the form.

You may also hire a Certified Acceptance Agent to do all this work for you and to file the tax returns. An Acceptance Agent charges a fee to acquire an ITIN and to file a tax return. The cost of a Certified Acceptance Agent to file your tax return would usually be a minimum of $200 so unless you have a significant withholding amount, you should probably do this yourself. There is also a cost to acquire an ITIN. See the link for Form W7 above.

To find a Certified Acceptance Agent, do a web search for Certified Acceptance Agent or email Your Suncoasteam.

This article contains information for foreign buyers and sellers of Florida real estate. What are the rules and costs for a foreign or international buyers of homes or land in Florida. Is there any difference in costs to a Canadian buyer of Florida real estate, homes or condos? What does it cost for a European to buy Florida homes? What taxes does a foreign seller pay when selling Florida Real Estate? What are the fees to an investor in Florida real estate and homes for a resident of UK, England, Great Britain? Are there any hidden costs to buy or sell real estate in Florida for a non-resident foreigner?

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