Hello, We have seen an increase in land purchase from the State government, have you?
Selling US Real Estate to the Government? FIRPTA May Not Apply!
Selling property can be complicated, especially when foreign sellers are involved. The Foreign Investment in Real Property Tax Act (FIRPTA) generally requires buyers to withhold a portion of the sale proceeds to ensure the IRS receives any taxes the foreign seller owes. However, there's a key exception that many people don't know about: sales to the U.S. government.
That's right! If you're a foreign person selling property to a U.S. government entity (federal, state, or local), FIRPTA withholding might not apply. This exemption, found in IRC § 897(g), can simplify the transaction and save you money.
Here's what you need to know:
- Confirmation is Key: While the exemption exists, confirming its applicability to your transaction is crucial. Consulting with a tax professional is always recommended.
- Documentation Matters: Proper documentation is essential, even if exempt. The seller should provide a W-8ECI form to document their foreign status and provide their U.S. tax identification number (TIN). They'll need to obtain one if they don't have a TIN.
- 1099-S Reporting: The settlement agent should prepare a 1099-S form, checking box five to indicate a foreign seller.
- Covered Opinion Letter: For added protection, consider obtaining a covered opinion letter from a qualified tax professional for the buyer. This letter confirms the FIRPTA exemption and provides due diligence documentation, which can be crucial in avoiding potential penalties if the IRS ever challenges the exemption. This is particularly important because the buyer is ultimately responsible for FIRPTA withholding, not the settlement agent.
Important Note: Even if exempt from FIRPTA withholding, foreign sellers are still responsible for reporting any taxable gain on their U.S. tax return.
Need Help?
Navigating FIRPTA rules can be complex. If you have questions or need help with a real estate transaction with a foreign seller, please reach out to a licensed tax professional expert in FIRPTA matters. We offer free educational resources and can provide your buyers and sellers with tailored advice specific to their needs.
Disclaimer: This blog post is for informational purposes only and does not constitute legal or tax advice. It is recommended that each party seek independent legal and tax counsel for advice tailored to their specific situation.
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Mary Enzi CAA
Tax Solutions – FIRPTA Consulting
[email protected]+1 (281) 578-1040
Katy TX
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