FIRPTA Attorney
Understanding FIRPTA is crucial for foreign investors interested in U.S. real estate. FIRPTA applies to both residential and commercial properties and affects a wide range of investors, from individual buyers to large corporations.
At its core, FIRPTA requires the buyer or the buyer’s agent to withhold a certain percentage of the sales price and remit it to the Internal Revenue Service (IRS) as a tax payment on behalf of the foreign seller. This withholding amount is usually 15% of the sales price, but it can vary depending on the circumstances.
It’s in your best interest to consult with a tax firm when going through this process. Moreover, a Maryland FIRPTA lawyer in Ledingham Law can help you with compliance and avoid penalties related to breaking the federal rules. Contact us today!
What is FIRPTA, and What Do You Need to Know About It?
FIRPTA is an important set of withholding rules that require a foreign individual or business entity to pay capital gains tax on the sale of a United States real property interest. The U.S. real estate buyer acts as the withholding agent and must withhold a certain percentage (generally 15%) and remit it to the Internal Revenue Service on behalf of the foreign person.
Who Does FIRPTA Apply to?
A Foreign Person is a nonresident alien individual, a foreign partnership, foreign trust, foreign estate, or foreign corporation that did not elect to be treated as a domestic corporation. Not all non-U.S. citizens qualify as “Foreign Persons,” such as resident alien individuals.
Buyers do not have to withhold taxes if they receive a certification from the seller that states, under penalties of perjury, that the seller is a non-foreign person.
ON WHAT TYPE OF UNITED STATES PROPERTY DOES FIRPTA APPLIES?
FIRPTA applies to real property interests in the United States. The obvious types of U.S. real estate that it applies are land, buildings, and homes. However, FIRPTA also applies to natural deposits, mines, and some personal property that is closely associated with real property (such as movable walls and farming equipment).
WHEN DO NONRECOGNITION PROVISIONS APPLY?
Certain non-recognition provisions exist under the Foreign Investment in Real Property Tax Act (FIRPTA) that allow foreign sellers of U.S. real estate to avoid income tax withholding. One common exception involves the sale of a personal residence.
Specifically, if a foreign person is selling their primary personal residence and its fair market value is less than $300,000, they are exempt from the withholding tax requirement.
What Are the Applicable Withholding Rates?
The withholding requirement has several different rates. A 10% withholding rate applies to the sale of property when the amount realized is between $300,000 and $1 million. This rate also remains in effect if the property at issue is a primary residence. The rate of withholding increases to 15% if the sale price is valued over $1 million.
PAYING TAX ON DISPOSITION OF U.S. REAL PROPERTY INTERESTS
Generally, the buyer is the withholding agent. The buyer must inform the closing agent and their real estate professional that a foreign person is selling the property. In complex cases, it is important to have a real estate attorney.
The closing agent and title company will assist the buyer in following the correct steps. Upon closing, the buyer must complete and file Form 8288 within 20 days of the sale date. The closing agent must also withhold the tax and submit it to the IRS within the same time frame.
The buyer then must file Form 8288-A. Once the IRS receives this form, it will send a copy to the seller, who then attaches this copy to their U.S. income tax return for evidence of withholding.
WHAT IS A WITHHOLDING CERTIFICATE?
A withholding certificate allows the buyer to withhold a reduced amount upon the disposition of the property. The IRS gives the FIRPTA withholding certificates in several scenarios, including when the amount to be withheld will exceed the seller’s maximum tax liability.
Foreign Persons must submit a certificate application by filing Form 8288-B. If you are a foreign transferor, you need to submit this form as soon as you know you intend to dispose of your property.
FIRPTA PENALTIES THAT MAY APPLY
The FIRPTA penalty applies to the property transferee rather than the transferor. If the transferee fails to file Form 8288 by the deadline, they can face a $10,000 penalty and be responsible for paying the transferor’s taxes on the disposition.
CLIENT TESTIMONIALS
Being selected for an audit is arguably one of the worst things that could happen to a small business owner, or at least that’s how I felt.
It felt a lot less stressful when I hired Jess to communicate with the IRS on my behalf. Her extensive knowledge of tax law was evident when she would educate not just me but also the RA on the proper law.
She went the extra mile every day – with driving to me, essentially holding my hand through an interview, and making sure all responses to the RA were effective.
If you get audited – I strongly recommend having her by your side.
– Parul G.
As a small business owner, I had an enormous amount of questions. I needed to know how to book keep, claim deductions and credits, navigate selling online, providing services in different jurisdictions, and filing quarterly taxes.
A small business requires an enormous attention to detail and Jessica helped me be meticulous in strategizing my tax landscape and know the necessary laws and regulations.
I highly recommend her to anyone with tax questions.
– Nate W.
Contact
GET IN TOUCH
Ledingham Law can help foreign persons, domestic corporations, and U.S. buyers. We understand withholding certificate applications and reporting the proper withholding tax amount.
The attorneys at Ledingham Law can also help you make a definite plan if you did not follow the FIRPTA withholding rules. Contact us today at (240) 673-6869 for a consultation.
