FIRPTA 101 Understanding the Foreign Investment in Real Property Tax Act (of 1980) This information is offered in response to companies affiliated with real estate, who felt that it would be worthwhile enlightening their teams and associates more about this confusing part of the tax code. It is our hope to offer help in complying with the IRS, making a difficult process simple, and alleviating the fear of this potentially lucrative part of the market. Rosalie St Clair Instructor
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 WHAT IS FIRPTA? FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (of 1980) For more information concerning our FIRPTA services, or to request a complimentary Zoom presentation for your team, visit our website or contact our office. What is FIRPTA? FIRPTA is a withholding tax that ensures that the U.S. federal government (IRS) will get paid the taxes due for real estate sold by a foreign seller. Who is responsible? Both the foreign seller of U.S. property and the buyer of that property are involved. How is collection handled? Although the money is withheld from the foreign seller, the buyer is responsible for making sure that the money is remitted to the IRS. If the money is not paid, the buyer can be penalized which may ultimately result in property confiscation. Why choose FIRPTA Solutions, Inc. FIRPTA is a complex process. It may include the procurement of certified documents and strict deadlines. FIRPTA Solutions can manage part or all of the complicated components of the FIRPTA process. What? Who? How? Why?
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 WHO IS AFFECTED BY FIRPTA? FOR INDIVIDUALS Is the individual a U.S. citizen? If yes, stop. FIRPTA does not apply. If no, go to the next question. Do they have a green card? If yes, stop. FIRPTA does not apply. If no, go to the next question. Are they a U.S. resident? (Proof must be verified). If yes, stop. FIRPTA does not apply. If no, the seller is considered foreign and FIRPTA applies. FOR CORPORATIONS Was the entity formed outside of the U.S.? If no, stop. FIRPTA does not apply. If yes, the seller is considered foreign and FIRPTA applies. FOR LLCS Was the entity formed outside of the U.S.? If yes, stop. FIRPTA applies. If no, go to the next question. How many members are there? If more than 1 (multimember) FIRPTA does not apply. If only one, determine if individual is foreign (see above). If sole member is foreign, FIRPTA applies. If sole member is not considered foreign, FIRPTA does not apply. FOR TRUSTS Does the court system govern this trust? If no, stop FIRPTA applies. If yes, go to the next question. Does a U.S. person have control over all of the major decisions? If no, stop FIRPTA applies. If yes, then the trust is not foreign and FIRPTA does not apply. Certified verification may be required for some documents.
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 WHO IS AFFECTED BY FIRPTA?
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 RESIDENT ALIENS If an individual is not a U.S. Citizen, they can be considered a resident alien and not subject to FIRPTA if they meet one of two tests: #1 - The Green Card Test The individual is a lawful permanent resident of the United States, at any time, if they have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. They generally have this status if the U.S. Citizenship and Immigration Services (USCIS) issued them an alien registration card, form I-551, also known as a "green card.” #2 - The Substantial Presence Test The individual will be considered a US resident for tax purposes if they meet the substantial presence test for the calendar year. To meet this test, they must be physically present in the US for: • at least 31 days during the current year, • and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting: • 31 days during the current year, and • 183 days during the 3-year period that includes the current year and the 2 years immediately before that counting: o All the days (100%) that they were present in the current year (2017 in this sample), and o 1/3 of the days they were present in the first year before the current year, and o 1/6 of the days they were present in the second year before the current year.
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 EXEMPTIONS OR REDUCTIONS FOR RESIDENCY No withholding is required under section 1445(a) if one or more individual transferees acquire a U.S. real property interest for use as a residence and the amount realized on the transaction is $300,000 or less: • Buyer must have definite plans to reside at the property for at least 50 percent of the number of days that the property is used by any person during each of the first two 12-month periods following the date of the transfer. • Buyer’s family includes only their spouse, brothers and sisters (whole or half-blood), ancestors, and lineal descendants. If the above applies but the sales price is $300,001 - $1M withholding is reduced to 10% If buyer does not maintain minimum number of days, they could be liable for the full 15% unless they could establish that the failure was caused by a change of circumstances that could not be reasonably anticipated at the time of sale. Although IRS does not require a form to be filed, in this case, have the buyers sign an affidavit! Sellers can also obtain a Withholding Certificate from the IRS, reducing or excluding the required withholding. This is done by filing IRS Form 8288-B and must be filed and approved prior to closing. Contact us for help concerning any exceptions that may apply. Used as a residence? ≤ $300,000 $300,001 - $999,999 ≥ $1,000,000 YES Exempt 10% Withholding 15% Withholding NO 15% Withholding 15% Withholding 15% Withholding
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 WITHHOLDING WHO IS THE WITHHOLDING AGENT? • For the purposes of this return, this means the buyer or other transferee who acquires a United States Real Property Interest from the foreign person. HOW MUCH IS WITHHELD? • Generally, you must withhold 15% of the amount realized on the disposition by the transferor or the seller. • See also residency exemptions or reductions. The withholding agent is responsible for making sure that 10-15% of the selling price is remitted to the IRS along with correctly prepared IRS form 8288 within 20 days of closing or a penalty will begin accruing for each late day. IR$
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 Q. What if both the buyer and seller are foreign? This transaction is not exempt. The same rules apply, and in this case, both parties are required to have TINs. The buyers are still responsible for remitting the tax on behalf of the seller. Since they now own property in the US, if the tax is not submitted, they will be penalized with fines or even property confiscation. Q. Is the due date for the FIRPTA remittal 20 business days or calendar days beyond closing? 20 calendar days. Q. Is FIRPTA still applicable if one of the sellers is a US citizen? Yes, but the withholding amount is reduced by the percent of sellers in the partnership who are US citizens. Q. What if funds are not submitted on time? Interest and penalties will be assessed beginning on the 21st day after the date of transfer and ending on the day the payment is received by the IRS. These fees are payable by the Buyer. Q. What if the Buyer determines that the individual is not foreign? A Seller can complete a Certification of Non-Foreign Status. The Buyer will retain this certification for their records. Withholding is not required for this type of transaction. Q. Must each non-foreign seller execute a Certification of Non-Foreign Status? The identity of each non-foreign seller must be certified under FIRPTA. Q. What if the foreign seller does not have a TIN? The money still needs to be sent to the IRS. It can be sent in w/o a tax ID, but they will need to apply in order to recover the funds and file a tax return. Q. If the seller and the buyer want to avoid the cost of hiring a CPA or tax expert, can the real estate, settlement, or escrow agent help with FIRPTA questions? Although these professionals likely have experience with transactions that involve FIRPTA, they are not qualified to provide advice on any taxpayer’s unique situations. The best way to avoid an IRS violation is to consult a CPA or FIRPTA tax expert.
615 Cape Coral PkwyW Suite 202 Cape Coral, FL 33914 USA [email protected] www.FirptaSolutions.com FIRPTA Solutions, Inc. – often imitated, but never replicated O 239 540 1022 ABOUT US FIRPTA Solutions, Inc. focuses solely on FIRPTA-related services. Even the most veteran agents sometimes require expert advice concerning FIRPTA. The Foreign Investment in Real Property Tax Act (FIRPTA) is quite complex, yet everyone who deals in real estate should be aware and must comply with all components of this foreign tax withholding. With Certified IRS Acceptance Agents on staff, we can offer one stop for all your FIRPTA needs. Our services include: • Coordinate and apply for tax IDs • Apply for a reduced withholding amount • Create all remittance forms • Correspond with IRS for a quick turn-around • Prepare and file a US income tax return (for any foreign party) • Manage difficult or complicated cases • Work on resolving “old FIRPTA files that won't go away” • Multi-lingual staff members available • Complimentary informational FIRPTA Zoom presentation for your team. • Our newest service-- FIRPTA Solutions, Inc. now has the facility which allows the IRS or the client to deposit FIRPTA tax refunds in a bank account in the name of the client. Through our international banking partners these IRS FIRPTA refunds can be transferred directly into our preferred FIRPTA client’s bank account in their own country and in their own currency. Contact: FIRPTA Solutions, Inc. 615 Cape Coral Pkwy W. #202 Cape Coral, FL 33914 239-540-1022 Office [email protected] https://www.firptasolutions.com/