Understanding FIRPTA
The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 is found in IRC 1445 and 1446 of the IRS tax code, and requires foreign individuals and entities to pay an estimated capital gains tax on the sale of U.S. Real Property Interests (USRPI). Under this rule, whether the property is vacant land, a rental property, or an investment home, an estimated capital gains tax must be withheld at closing. This withholding tax is equal to 15% of the amount realized from the sale (generally the gross sales price).
If you are a foreign seller, or purchasing property from one, FIRPTA could impact your transaction. Knowing your responsibilities ahead of time is crucial. That's why, here at Moats & Associates, helping clients and professionals through the complicated FIRPTA process is more than our work—it’s our passion. Our extensive experience, commitment to learning, and steadfast dedication shape our identity and the service we provide.
FIRPTA Remittance
In most cases, the buyer (transferee) is the withholding agent and the one ultimately responsible for the FIRPTA remittance. If the seller (transferor) is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax.
The transferee, generally assisted by a FIRPTA specialist and the closing agent, must use Forms 8288 and 8288-A to report and remit to the IRS any tax withheld on the purchase of U.S. real property interests from foreign persons.
These forms, along with the required withholding payment, must be submitted to the IRS no later than the 20th day after the date of the disposition.
Withholding Certificate
Sellers (transferors) who feel they will either have a small gain from the sale, or no gain at all, can opt to file Form 8288-B, Withholding Certificate application. This form will calculate the actual capital gain on the sale and ask for a reduction or waiver of the withholding tax requirement.
The withholding certificate application must be filed on or before the date of transfer, as if not, the entire 15% will need to be remitted to the IRS within 20 days of closing.
While the application is being processed, the closing agent or escrow agent will hold the 15% in escrow. Once the application is approved, the IRS will issue a Withholding Certificate listing the reduced amount of tax that is due. The closing agent will send any required amount to the IRS with the Forms 8288 and 8288A and release the remaining funds directly to the seller.
FIRPTA Resolution
Have your IRS filings been submitted with incomplete or inaccurate information?
Are you experiencing delays in receiving your IRS refund because of improperly filed forms?
Were you the purchaser and are now receiving IRS notices and penalties because of the FIRPTA forms not being properly prepared?
If so, Moats and Associates is here to help!
Our dedicated and experienced team can provide comprehensive support with IRS notices, penalties, demands, and other FIRPTA-related matters. We also maintain a strong track record of successfully correcting FIRPTA cases with the IRS that were not properly handled initially.
Fees are assessed on a case-by-case basis and are determined by the level of time and complexity involved in resolving each individual matter.