Withholding Forms
FIRPTA Withholding: Form 8288, Form 8288-A, Form 8288-B
To ensure that tax is collected, the IRS designates the purchaser as the withholding agent. The purchaser is 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.
It is the purchaser’s responsibility to remit the withholding amount to the IRS within 20 days after the sale has closed. Typically, the title/escrow company will remit on behalf of the purchaser.
Forms 8288 and 8288-A are used for all sales in which FIRPTA withholding applies. If the seller is applying for a reduction in withholding, Form 8288-B is used.
FIRPTA Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
Form 8288 reports the purchaser’s information along with the total amount of taxes withheld on the sale of property by foreign nationals. The form must be completed prior to closing. In general, the title/escrow company remits it, along with the amount withheld, to the IRS within 20 days after the sale is closed. Late remittances are subject to heavy penalties.
FIRPTA Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests
Form 8288-A is completed at the same time as Form 8288 is completed. A separate form is required for each seller who had tax withheld. This further separates the withholding into the percentage allocated to each seller of the property for their respective share of ownership in the property. This can also be considered a “temporary tax slip”.
There are three copies of Form 8288-A. Two copies, along with Form 8288 and the total withholding amount, are sent to the IRS, while the buyers keep the third copy.
Applying the Withholding Tax
If you have a valid ITIN, the IRS will:
- Verify the details of the withholding and the cheque submitted by your title/escrow agent.
- Apply the withheld amount to your tax account using your ITIN.
- Send you Form 8288-A (your final tax slip) with a locator number. This slip is required to file your U.S. tax returns.
If you do not have a valid ITIN
Apply for it as soon as possible after the closing of your sale. According to the IRS, “You will receive a letter from the IRS assigning your tax identification number usually within seven weeks if you qualify for an ITIN and your application is complete.” We have found, though, that it usually takes about 11-12 weeks.
The amount withheld is not applied until you have notified the IRS of your new ITIN, after which:
The IRS will:
- Send you Form 8288-A (your final tax slip) with a locator number. This slip is required to file your U.S. tax returns.
- Apply the withholding tax to your existing ITIN.
- Issue and send you a final tax slip. This slip is a stamped copy of Form 8288-A, and contains a control number across the top and is used to file your US taxes.
You must then file your U.S. tax return and attach this stamped copy. The tax return will determine and settle any amount owed by you or refundable to you.
FIRPTA Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
If you are eligible for an exemption or reduction of the standard 15% withholding, complete and submit Form 8288-B.
For an exemption, this form is all that is required, along with a calculation of the expected capital gain.
You will also need to demonstrate that your taxes owing will be less than the withholding amount and provide all supporting documentation for the calculation of the gain or loss on the sale of the property.
The withholding certificate application should be completed and submitted to the IRS before the sale closes. The withholdings will be kept in escrow until the IRS processes the application, which takes a minimum of 90 days. Please note that the processing time for 8288-B is currently excessive and can lead to significant delays and processing errors.
FIRPTA Withholding Tax Refund
Once the application is adjudicated, the IRS will notify you of the amount of taxes to be withheld and remitted to the IRS along with Forms 8288 and 8288-A. Subsequently, you will receive the balance remaining, which will be released from your escrow account. You are still required to file your U.S income tax returns, and the taxes owing may or may not match what the IRS determined the initial withholding to be. The difference will either be payable or refundable.
Our FIRPTA Services
Dealing with all the FIRPTA requirements can be a real challenge. Although the information on this site is very helpful for those who want to take on the challenge, there’s a strong chance that you will encounter some obstacles or perhaps overlook some important steps.
Save yourself time, stress, and problems by having FIRPTA GLOBAL do the work. We’re FIRPTA experts who know all the detailed steps, and we enjoy helping sellers breathe easy.
We guide you through the entire FIRPTA process. We will:
File all required FIRPTA forms.
Provide your title or escrow company with all required FIRPTA documentation.
If required, assist with obtaining an ITIN for each seller.
File the U.S. federal and state (if applicable) tax returns for each seller.
Let FIRPTA GLOBAL Handle Your FIRPTA Needs
Our services can be provided virtually or in person. Contact us to start the process!