Non-US Citizens (Foreign Nationals investors) with Sale of Your American residential or commercial property FIRPTA Tax Withholding
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests.
A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited
For a sale or exchange,
Liquidation
Redemption
gift, transfers, etc.
Persons purchasing U.S. real property interests (transferees) from foreign persons [For example British National or any other foreign country other than American passports], certain purchasers' agents, and settlement officers are required to withhold Federal FIRPTA TAXES at 15% (10% for dispositions before February 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).
In most cases, the buyer (transferee) is the withholding agent. The transferee must find out if the transferor is a foreign person [i.e Non-United States Resident]. If a transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.
Action required by the Foreign person selling their property in the USA – before the sale if you selling the property in 2023
Notify the buyer or the escrow team he is a foreign person and provide a valid ITIN number if he or she is a foreign seller
Ensure that Form 8288 is completed by the escrow team
Ensure the Form 8288A is completed by the escrow team with the ITIN number or SSN number if the application
If the property sale proceeds are less than $300,000 then apply for reduced or exemption from FIRPTA tax by completion of Form 8288B three or four months prior to the closing date and have a valid ITIN approved.
Action required by the Foreign person – if the property sold or contract of sale/completion happened on or before 31st Dec 2022 and has FIRPTA Tax withholding.
If your escrow or selling agents withheld FIRPTA tax of 15% or 10% of sale proceeds, request Form 8288A and IRS check FIPRTA payment proof.
You can file a USA Non-resident Alien tax return and claim your FIRPTA tax in full if the net profit or capital gains on the property is less than $40,000.
Please note you need a valid USTAX ID or ITIN number in order to file a non-resident alien tax return to claim your FIRPTA tax refund.
For more information on FIRPTA
We are one of the IRS-approved Certified Acceptance Agents CAA with many years of experience dealing with IRS ITIN applications and Federal tax return refund claims. If you are looking for expert advisory or tax reclaim or ITIN application service with passport certification and to ensure ITIN is approved with a 100% success rate reach out to the US via our website with the service required.
