What is FIRPTA?
FIRPTA stands for Foreign Investment in Real Property Tax Act and it is the Federal law governing the taxation & withholding by foreign persons selling US real estate.
Under FIRPTA, the buyer is required to withhold either 10% or 15% of the gross sales price from proceeds as a “deposit” due to IRS within 20 days after closing; when purchasing from a foreign seller (See below certain exceptions apply).
A “foreign person” is defined under FIRPTA includes all of the below:
Foreign Nationals Citizens/Nonresident alien individual,
Can I avoid the FIRPTA withholding in a legal way?
Yes, If the exemption conditions are met(See below) affidavit can be executed by an “eligible” buyer.
Form 8288B (to be done 3 months before the sale/closure ) apply for withholding Certificate may allow a lesser amount withheld at closing.
FIRPTA Exemptions Conditions/Eligibility includes:(No withholding required under FIRPTA if below conditions are met:
§ The sales price is $300,000 or less,
§ The buyer signs affidavit at or before closing stating they intend to use the property for personal purposes for at least 50% of time property occupied for each of the first two 12 month periods immediately after closing.
Withholding Certificate to be obtained (Recommend to apply 3 to 4 months prior to sale or closure of the property with withholding agent/escrow or title company)
The amount of tax required to be withheld under FIRPTA cannot exceed total tax liability. A seller or buyer may apply for a withholding certificate (IRS Form 8288-B) allowing less than 10% withheld or installment payments.
90 days to issue from receipt of application
Note : From February 16, 2016 - If the total sale is more than $1,000,000 OR the property is not being acquired as a residence, the buyer is required to withhold 15% of the gross sales price. Foreign National can claim a refund back filing 1040 Non Resident Alien tax return and Form 8288A submission.
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