Foreign individuals and businesses who own US real estate will learn, when it comes time to sell their property, that the Foreign Investment in Real Property Tax Act (FIRPTA) requires 15% of the gross sales proceeds to be withheld by the seller and remitted to the IRS. For a variety of reasons, this is often more than the tax actually owed..
There two exemptions to the 15% withholding that cover most circumstances:
- If the sales price is less than $300,000 and the buyer intends to use the property as a personal residence, withholding is not required. The buyer will need to sign an affidavit about their intentions to qualify for this exemption.
- If taxpayer can show that the amount of tax owed is less than 15% of the selling price, a withholding certificate from the IRS can be obtained to reduce the withholding to the amount of the taxes due.
We can prepare a computation for you showing the sales price, the cost of the property and adjustments to cost, the taxable gain, and the federal income tax due. Since the rate of tax on long term capital gains is often less than 15%, and only the profit is subject to tax, the actual tax owed is usually much less than 15% of the selling price. An income tax return can be filed to claim a refund for the excess withholding, but most sellers find it more convenient to avoid the withholding in the first place.
We can help you with the tax computations and preparing the application for a withholding certificate (form 8288-B). We can also help you prepare and file your US federal and state income tax returns.
- Mark S Gleason CPA