Many foreign national real estate investors often inquire, “What are the FIRPTA requirements?” In this video, our IRS Enrolled Agent and FIRPTA specialist will provide clarity on this important topic. It’s crucial for foreign sellers of real estate in the United States to understand FIRPTA requirements to avoid surprises regarding FIRPTA withholding at the closing of their sale transactions.
For inquiries, call us at +17169068976 or visit UniqueTax Accounting.
DISCLAIMER
This video is intended for educational purposes only and should not be construed as legal, financial, or tax advice. Please consult with a professional regarding your specific situation before making decisions based on this content. UniqueTax Accounting and its affiliated entities—UniqueTax Accounting and Multiservices Inc., Unique Insurance Financial Inc., Unique Realty Source Inc., and Unique Immigration International Inc.—are providing educational materials to raise awareness on various topics, but they do not provide generalized advice applicable to everyone. Neither UniqueTax nor its members can be held liable for any use or misuse of this information.
TRANSCRIPTION:
Hello everyone, I’m Robert Acevedo, the FIRPTA specialist at Unique Tax. Today, we’ll simplify the often complex topic of FIRPTA. So, what does FIRPTA mean? FIRPTA stands for the Foreign Investment in Real Property Tax Act. If you’ve ever wondered how foreign investors are taxed in the U.S., you’re in the right place.
Enacted in 1980, FIRPTA was established to ensure that foreign investors pay taxes on profits earned from selling U.S. real estate or investments. Before FIRPTA, foreign sellers could liquidate their U.S. assets without facing any tax obligations, which resulted in lost revenue for the IRS.
Now, why is FIRPTA significant? For foreign sellers, FIRPTA withholding applies to the sale of U.S. real estate. For buyers, understanding FIRPTA is essential to comply with IRS regulations and avoid potential penalties.
If you’re a foreign seller, it’s vital to be aware of the FIRPTA withholding process to potentially reclaim those funds later. For buyers, the IRS holds you accountable for ensuring FIRPTA withholding is correctly handled, which is crucial to avoid any penalties for non-compliance. FIRPTA can also influence the structure and flow of real estate transactions.
So, who does FIRPTA apply to? Essentially, it affects foreign individuals or entities, including corporations and partnerships. FIRPTA is relevant in nearly all types of property transactions in the U.S., including residential, commercial, and vacant land.
However, some exceptions exist. A common one is the $300,000 exception: if the sales price is under $300,000 and the buyer intends to occupy the property, FIRPTA withholding may be avoided by signing an affidavit at closing. Additionally, FIRPTA may not apply if the seller has resided in the U.S. for a certain period.
How should sellers or buyers navigate FIRPTA in their transactions? Collaborating with a professional experienced in FIRPTA is crucial. We regularly assist realtors, title companies, attorneys, buyers, and sellers to ensure compliance with IRS regulations throughout the transaction.
Having a professional handle the necessary forms and ensure the correct amount of FIRPTA is withheld at closing is essential for avoiding issues with the IRS. For example, we frequently prepare Forms 8288 and 8288A, which are submitted to the IRS along with the withholding amount, ensuring compliance within the 20-day window post-closing.
Now, let’s address the consequences of noncompliance. If FIRPTA applies and the buyer fails to withhold and submit the required forms, they could face significant penalties and tax liabilities from the IRS. From the seller’s perspective, it’s critical to accurately complete and file FIRPTA forms on time to position yourself to claim a refund of the withheld funds.
In conclusion, FIRPTA plays a vital role in real estate transactions involving foreign sellers and buyers. Seeking professional assistance is key to ensuring compliance with IRS regulations and avoiding future complications. Thank you for watching, and I hope you found this information valuable. If you have any questions about FIRPTA, please reach out to us. We’re here to help. See you next time!