Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests)
Form 8288B (Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests)
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,
- foreign estate.
- foreign corporation,
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 the 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 instalment 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 Nationals can claim a refund back filing 1040 Non Resident Alien tax return and Form 8288A submission.
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