Withholdings & Exemptions
FIRPTA Withholding & Exemptions: Section 1445
Under Section 1445 of the Internal Revenue Code, to ensure that tax is collected, the IRS designates the buyer as the withholding agent responsible for withholding the appropriate rate of tax, if any, from the disposition of the property. This applies when the seller is a foreign person / non-U.S. resident, as defined by the Internal Revenue Code of the IRS.
The buyer is then responsible for remitting that amount to the IRS. The funds are withheld at the time of sale and remitted to the IRS within 20 days following the closing of the sale. Late remittances are subject to heavy penalties.
FIRPTA Exemption or Withholding Rate Calculation
The following five scenarios apply if the purchaser is an individual and has provided a signed residential FIRPTA affidavit.
1 Sale Price Under $300,000: Sale is exempt from withholding
No withholding forms are required to be submitted.
2 Sale Price $300,000 to $1,000,000: 10% Withholding Rate
Complete and submit Forms 8288 and 8288-A to the IRS before the closing date of the sale.
3 Sale Price Over $1,000,000: Withholding Rate of 15%
Complete and submit Forms 8288 and 8288-A to the IRS before the closing date of the sale.
4 Vacant land: Withholding Rate of 15%
Complete and submit Forms 8288 and 8288-A to the IRS before the closing date of the sale.
5 FIRPTA Withholding Reduction or Exemption Based on Your Tax Situation
You can also apply for an exemption or reduction:
- If your property was sold at a loss, or
- If the amount of the 15% withholding significantly exceeds the total maximum amount of your U.S. taxes payable.
- Complete and submit Form 8288-B to the IRS before the closing date of the sale. You must also include a capital gain calculation as proof that your taxes owing are less than the withholding amount. Please note that the processing time for 8288-B is currently excessive, which can lead to significant delays and processing errors.
FIRPTA Forms
- FIRPTA Form 8288: U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
- FIRPTA Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests
- FIRPTA Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
Our FIRPTA Services
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