Hello ALTA;
I want to comment what are the most common questions regarding FIRPTA;
1. What is FIRPTA?
Foreign Investment in Real Property Tax Act, FIRPTA is a DEPOSIT a foreign seller (per IRS definition) must be sent to Treasury at the time of sale, is not tax is a deposit, FIRPTA withholding is 15% of the sales price of the property and it can be reduced to 10% should requirements are met.
2. Is FIRPTA new?
No, FIRPTA was enacted in 1980, it has recently been "enforced" by the IRS due to the high number of foreign investment in real estate in the U.S.
3. What if the seller is a "Domestic LLC"?
Give us a call, a "sole member" is a disregarded entity for tax purposes and if the owner is a foreign person (by IRS definition) FIRPTA applies just as it would to an individual, but if the entity is a U.S. corporation owned by a foreign individual(s) the corporation has to make sure to withhold before distributing the proceeds of the sale to the foreign owners.
4. Do foreign sellers need an ITIN at the time of sale?
Technically no, however, it is important to apply for an ITIN to expedite the FIRPTA deposit recovery, we are CAA - Certified Acceptance Agents license by Treasury, give us a call.
5. Are there any exceptions to FIRPTA?
Yes, if a residential property is being sold by a foreign person for under $300,000 AND the buyer intents to make it his primary residence FIRPTA can be exempt if the buyer is willing to sign a document stating that he intends to live in the property for at least 50% of the next 2 years.
6. What if the seller is selling for less money than the original purchase price?
FIRPTA still applies (if no other exceptions) sometimes people have to bring money to the closing table to cover mortgage and FIRPTA which are normally the 2 biggest "items" to pay from the proceeds of the sale.
7. Who is responsible for the FIRPTA withholding?
BUYER, yes, BUYER is responsible to withhold from SELLER's proceeds the FIRPTA deposit, buyer is by IRS definition the withholding agent and is in his best interest to send that withholding to the IRS in the 20 days after the closing.
Always make sure your clients are taking care of by a professional who is familiar with the FIRPTA process, not all CPAs understand this particular IRS rule and can make mistakes causing delays or the deposit to be lost within the IRS, is important that the withholding is sent with all supporting documents, please give us a call to make sure the FIRPTA withholding is sent to the correct address with all the necessary forms, is better to send everything right from the beginning than fixing mistakes after the fact, it delays the recovery and makes professional fees more expensive.
Please reach out to us, let us be a resource and make FIRPTA easy for you!
------------------------------
Mary Enzi
Tax Solutions – FIRPTA Consulting
Barker TX
+1 (281) 578-1040
[email protected]
------------------------------