FIRPTA APPLICATION

FIRPTA WITHHOLDING APPLICATION

Form 8288-B

REQUEST FOR TAXPAYER IDENTIFICATION NUMBER

Are you buying or selling real property involving a non US Resident? Your transaction may be subject to FIRPTA withholding. The Foreign Investment in Property Act (FIRPTA) requires 10% of the sales price to be sent to the IRS when a non US Resident sells real estate. Moreover the buyer is held liable for the tax if not paid by the foreign seller. There is a way to mitigate this and confirm the tax liability with the IRS before closing: Application of a Withholding Certificate.

In this housing market many times the foreign seller will have little or no tax liability when selling a property, certainly not 10% of the sales price. By submitting Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, the seller submits all documentation confirming what the tax liability would be on the sale and upon review the IRS confirms a reduced or no withholding requirement. It must be submitted to the IRS before closing and takes no more than 90 days to be processed. Another benefit is that while the 10% must be held if the Withholding Certificate is not presented at closing the escrow agent, title company or attorney can hold the funds. Upon presentation of the Withholding Certificate they can release the funds to the foreign seller and remit any funds to the IRS if applicable. This ensures both the seller and buyer are protected from any future tax liabilities.

Foreign sellers should be aware that the receipt of a Withholding Certificate does not substitute the requirement to file a United States Tax Return.

Our firm can prepare the Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests. We work with your Real Estate Agent and/or Attorney to ensure expert preparation.

The following information is needed to prepare Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests:

  • Fully Executed Sales Contract (current purchase & sale transaction)

  • Fully Executed Closing Statement (original purchase by seller)

  • List of improvements with accompanying receipts (will reduce tax liability)

  • Estimated Closing Costs (Seller’s)

Please note both buyer and seller must have Social Security and/or Individual Tax Identification Numbers. If any party does not we can also prepare that application, Form W-7, Application for IRS Individual Taxpayer Identification Number.

Starting February 16, 2016 FIRPTA guidelines have changed:

  • If the amount realized (generally the sales price) is $300,000 or less, AND the property will be used by the Transferee as a residence (as provided for in the current regulations), no sums need be withheld or remitted.
  • If the amount realized exceeds $300,000 but does not exceed $1,000,000, AND the property will be used by the Transferee as a residence (there are no regulations that specifically address these changes but many are assuming you can follow the current regulations for the $300,000 exemption), then the withholding rate is 10% on the full amount realized.
  • If the amount realized exceeds $1,000,000, then the withholding rate is 15% on the entire amount, regardless of use by the Transferee.


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