At Just Breve we regularly receive requests for ITINs (Individual Taxpayer Identification Numbers), where a non resident of the US has put up a property for sale and needs an ITIN before they can close. They then have also learnt of the 15% tax withholding for FIRPTA purposes on the gross sale.
If you are Selling a US Property as a Non Resident of the USA, then these FIRPTA FAQs are going to help you understand your obligations when selling as a foreign seller of US Real Property Interests.
What is FIRPTA?
The acronym stands for the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to a tax of 15% of the gross sales price at closing.
This includes sales of property and land sales, which most non resident sellers will be party too. It does also include a multitude of other items (including liquidation, redemption, gift, transfers, etc. as well as the sale of a US entity, such as a corporation or partnership, that disposes of a U.S. real property interest and has a non resident owner or partner).
In most cases, the buyer (transferee) is the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax.
What forms are required to be filed at closing as a non resident seller of a US property?
Forms 8288 and 8288-A are required to be signed by the withholding agent for the sale (normally the buyer). These forms can be completed by the US agents, but in some cases, they pass the buck to the foreign seller to complete and provide them.
Can Just Breve assist with Form 8288 and 8288-A?
Yes, we charge a fixed fee to prepare the forms for you. Normally we liaise with the US agents to obtain part of the information required and the rest we can obtain from the foreign seller (i.e. you).
When are the forms prepared for FIRPTA?
Normally at or close to closing. This can be a few days to a few weeks, depending on how quickly the US agent realises they are needed!
What happens with the Forms after completion?
The forms are used to pay the 15% tax across to the FIRPTA unit at the IRS (based in Ogden, UT). The responsible party in the US, who is issuing the cheque for the payment of the tax held, will send the signed form 8288 and the 8288-A to the IRS. Once received, the IRS processes them and logs the tax or in cases where no SSN or ITIN was shown for the foreign seller, they issue a letter requesting an ITIN from you.
Why do I need an ITIN?
All US real property sales are reportable transactions for tax withholding tax purposes. To report any significant tax event like this, the withholding agent must have a tax number (i.e. SSN or ITIN). Therefore if the foreign seller does not have an ITIN, the withholding agents must ensure the foreign seller applies for one at closing.
The paperwork with "applied for" will be issued (i.e. Form 8288 and 8288-A) for the FIRPTA tax withholding and will then be sent to the FIRPTA unit in Ogden, Utah. At the same time, the same forms will be used to obtain an ITIN for you via the ITIN unit in Austin, TX.
Once the ITIN is assigned, the ITIN unit will forward the ITIN to the FIRPTA unit to match the number to the tax held in the IRS bank accounts.
The same ITIN is then used to file a 1040NR US tax return to report the sale, calculate the actual gain (or loss) and report the FIRPTA tax withholding. Any difference (excess paid) is then refunded by the IRS (as applicable) to the foreign seller.
Most foreign sellers who made a small gain (under $40,000) will receive a full refund of the tax held by FIRPTA. Above this any gains are taxed at 15% of the net gain reported.
I only used the property as a holiday home, do I still need an ITIN?
Unfortunately yes, as the sale is a disposition of a U.S. real property interest by a foreign person. Therefore subject to withholding on the gross sales price.
I owned a Disney Timeshare, does FIRPTA apply to me?
Again, unfortunately yes, as the sale is a disposition of a U.S. real property interest by a foreign person. Therefore subject to withholding on the gross sales price.
How can Just Breve help?
We assist with US property sales regularly and can assist with both your ITIN application (Form W-7) and the FIRPTA forms (8288, 8288-A or 8288-B*).
* 8288-B - reduced withholding certificate - this is a way to have the 15% tax held in escrow while the IRS decides if you need to pay the 15% on the gross or a reduced amount as shown and calculated on the certificate. Currently this unit has 12 to 18 month delays in processing, and depending on what time of year you sold, it would be best just to hold the flat 15% instead and then file a US tax return (1040NR) the following year to reclaim any excess tax. In most cases, this is much quicker then waiting for a response that will take so long.
Contact Just Breve for more information:
Just Breve - is a US tax accounting firm, assisting non US persons with their US tax filing requirements, including obtaining a refund of overpaid US tax. This includes applying for a new ITIN or renewing an existing ITIN. We are a certifying acceptance agent (CAA) and have a contract with the IRS to help with Form W-7 ITIN applications.
T: 0208 1444632
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