FIRPTA is an acronym for Foreign Investment of Real Property Tax Act. FIRPTA is a law, not a tax, a common misunderstanding. The United States Internal Revenue Service follows a federal law that applies to non-U.S. citizens. Under FIRPTA, an estimate of an owner’s capital gains tax that will be due when disposing of real property at closing. Prior to the passage of FIRPTA, the state had no means of collecting such taxes unless the absentee owner filed a IRS income tax return for the year of the sale.

HOW MUCH IS COLLECTED UNDER THE FIRPTA LAW?

The amount collected under the FIRPTA law is 15% of the sales price.

IF THE COLLECTED AMOUNT IS TOO LARGE, HOW DO YOU OBTAIN A REFUND?

If the 15% of sales price withholding is too large, the owner files IRS form 8288-B after closing. If the appropriate income tax return for the year is available, then the owner should file the appropriate tax return instead of filing form 8288.

https://www.irs.gov/forms-pubs/about-form-8288

https://www.irs.gov/pub/irs-pdf/f8288b.pdf

DO BOTH THE HUSBAND AND WIFE NEED THEIR OWN ITIN NUMBER?

Yes, each person has to apply for their own ITIN and assign 50% of the sales price to each person.

WHAT IF THE SELLER HAS NOT RECEIVED THEIR ITIN NUMBER AND THE TRANSACTION CLOSES?

The escrow agent has to send the funds no later than 20 days from the closing date and note you are pending your number to avoid a penalty.

Can I submit the Reduced Withholding request without a ITIN number?

No, the IRS will automatically reject the form.

What if I am selling at a loss and receiving no money at closing?

It doesn’t matter the withholding still applies.  Complete form 8288-B.

I have an ITIN number. Does it expire?

Yes, it does, especially if it has not been used. The time limit is 3 years, but it changes.  Please have your CPA check with the IRS if yours has expired.

What if the closing has already occurred?

Complete IRS form 843 and 1040NR

Must have a stamped copy of form 8288-A

What is Form 2848 – Declaration of Representation?

Allows a CPA or attorney act on your behalf for this specific transaction.

HOW DOES AN OWNER OBTAIN THE FIRPTA FORMS?

The forms can be obtained from the state. Select “Forms” from the U.S. government website.  https://www.irs.gov/pub/irs-pdf/f8288.pdf

WHAT DEFINES A NONRESIDENT?

A nonresident owner for purposes of FIRPTA is an owner who does not file a US resident tax return.

AN IRC 1031 TAX-DEFERRED EXCHANGE?

Section 1031 of the Internal Revenue Code (IRC) provides for the deferment of capital gains taxes realized on the sale of investment real estate when it is exchanged for other investment real estate. Under IRC section 1031, if you sell investment real estate and buy more expensive investment real estate within a prescribed time frame, you can defer capital gains taxes on the property you are selling. Note, a 1031 does not cancel the FURPTA withholding for the foreign seller.

NO TAXABLE GAIN?

No taxable gain applies when there is a loss on the sale rather than a gain. No taxable gain may also involve transfers of property incident to a divorce, as a gift, or as an inheritance.

HOW IS FIRPTA ENFORCED?

FIRPTA has the buyer responsible for paying the withholding if appropriate documentation is not provided by the seller. Therefore, escrow will automatically withhold 15% of the sales price unless the seller can document that no such withholding is required.

Who pays real estate transfer FIRPTA tax?

The escrow company will collect the funds from the seller and submit them to the Internal Revenue Service.

Who is responsible for FIRPTA withholding?

IRS laws require the buyer or transferee of any real estate is required to withhold and deduct a tax equal to 15% of the amount realized by the seller or transferor upon the disposition of the property and file Forms 8288-B.  Of note, the title agent will manage this for the buyer and should see notation of this action on the settlement statement.

What is Form 8288?

https://www.irs.gov/forms-pubs/about-form-8288

Form 8288-B https://www.irs.gov/forms-pubs/about-form-8288 to apply for a refund of the amount withheld on dispositions by nonresident persons of non US resident when selling real property which is in excess of the transferor/ seller’s tax liability for the transaction.

Who is subject to FIRPTA?

Put simply, any non-US resident selling real property in the state must do so. Therefore, U.S. residents and foreign nationals alike are subject to FIRPTA withholdings.

How do I avoid paying FIRPTA?

File a Form 8288-A https://www.irs.gov/pub/irs-pdf/f8288a.pdf requesting a withholding certificate in a timely manner prior to closing to avoid FIRPTA withholding altogether if you qualify. Or, complete 8288-B and wait for your refund.

WHEN IS THE FIRPTA PAYMENT DUE?

The title agent acting on behalf of the buyer must submit the proper forms and withheld amounts to the Department not more than twenty days following the transfer date (the date on which the sale closes and title to the property passes from the seller to the buyer). Failure to file the return or to timely pay the amount due may result in the imposition of penalties and/or interest.

Can an escrow company apply for a refund of the withholding?

No. The escrow company cannot apply for a refund. The Department cannot process a refund request submitted by any other party, including the escrow company. Once payment is made to the Department, only the seller can request a refund of the amount withheld. The seller can apply for a tentative refund by filing Form 8288-B.

Where can I get additional information on FIRPTA?

https://www.irs.gov/forms-pubs/about-form-8288  800-829-1040 7 a.m. to 7 p.m. local time