FIRPTA WITHHOLDING CERTIFICATES
Helping Foreign Clients Reduce or Eliminate FIRPTA Withholding upon
Sale of U.S. Real Estate
Dilendorf & Khurdayan assists foreign sellers in navigating real estate transactions subject to FIRPTA withholding requirements.
FIRPTA withholding applies to any disposition of real estate interest by a foreign person and obligates the buyer to withhold percentage of the purchase price at closing and remit it to the IRS.
Dilendorf & Khurdayan has substantial experience in helping foreign clients reduce and, sometimes, eliminate FIRPTA upon sale of U.S. real estate.
For foreign investors, FIRPTA can make a relatively simple transaction a much more complicated affair and tie up funds that could otherwise be quickly reinvested.
In addition, FIRPTA withholding substantially complicates transactions involving foreign financing and 1031-Exchanges.
FIRPTA consequences, however, can be mitigated or eliminated altogether with proper planning and guidance.
Advised a client from Italy how to reduce FIRPTA withholding by more than 80% on the sale of investment property in Manhattan
Assisted a foreign client with obtaining FIRPTA refund from the IRS in connection with the sale of $4.7M apartment building
Advised a foreign client on the mechanics of obtaining FIRPTA withholding certificate during a 1031-Exchange
Advised a foreign client on a step-by-step process of obtaining FIRPTA withholding certificate in connection with the sale of the client’s investment property in Nevada
FIRPTA Withholding on Dispositions of U.S. Real Property Interests
FIRPTA (the Foreign Investment in Real Property Tax Act of 1980) was instituted by the IRS to ensure capital gains taxes were captured from foreign sellers that did not file traditional tax returns.
FIRPTA obligates the buyer to withhold percentage of the total purchase price and surrender it to the IRS:
Transactions over $1M – 15% of the purchase price
Transactions $350K to $1M – 10% of the purchase price
Transactions under $350K – Exempt from FIRPTA
The penalties that are imposed on the buyer, as the withholding agent, for non-payment or late payment of FIRPTA withholding are substantial and may include the full withholding amount, plus fines.
Disadvantages of FIRPTA Withholding
- Ties up the sale proceeds with the IRS until the next tax year
- Prevents timely reinvestment of the sale proceeds
- Complicates 1031-Exchanges
- Complicates satisfaction of foreign mortgages/financing arrangements
- May impede payment of transfer taxes and closing costs
Since the seller is only responsible to pay applicable tax rate on the gains realized from the sale and not the purchase price at which the property was sold, FIRPTA withholding often results in seller overpaying taxes at closing.
Foreign seller, then, must file taxes on the sale of the property for the year in which the sale took place and ask for the refund. Such setup often results in extra funds paid as part of the FIRPTA withholding to be tied up for an extended period with the IRS. In some cases, it can prevent timely reinvestment, complicate 1031-Exchange, impede satisfaction of a foreign mortgage/financing and can cause financial distress.
Obtaining FIRPTA Withholding Certificate to Reduce the Withholding Amount
While FIRPTA ensures that foreign sellers are contributing their fair share, it can also cause complications and is generally inconvenient because a large chunk of proceeds from the sale is not available to the seller until a much later date.
To mitigate negative consequences of FRIPTA, the IRS has created a process that can reduce or negate FIRPTA withholding.
While there is no way to get around FIRPTA, the foreign seller can plan ahead and apply for a FIRPTA withholding certificate that allows a reduction of the withholding amount (“Withholding Certificate”), allowing more of the sale proceeds to be available to the seller at the time of closing.
Dilendorf Khurdayan, PLLC Can Assist You with Obtaining FIRPTA Withholding Certificate
By obtaining a Withholding Certificate, a foreign property owner can reduce FIRPTA withholding at the time of sale.
Dilendorf & Khurdayan examines all aspects of the transaction to maximize FIRPTA withholding reductions for his clients. Applying for a FIRPTA Withholding Certificate can be a complicated process.
The process of obtaining a FIRPTA Withholding Certificate takes 4-8 weeks and requires that seller makes an application as early as possible in the selling process.
Our firm carefully guides clients through every step of the application process to maximize returns on the clients’ real estate investments in the U.S.
We assist clients on both sides of the transaction to complete FIRPTA forms, including:
- Application for IRS Individual Taxpayer Identification Number | W-7 Form
- U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests | 8288 Form
- Statement of Withholding on Disposition by Foreign Persons of U.S. Real Property Interest | 8288-A Form
- Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interest | 8288-B Form
- Statement of Earning
Hire Dilendorf Law Firm to Reduce or Eliminate FIRPTA Withholding on Your Next Sale of U.S. Real Estate
Every transaction involving sale of U.S. property owned by a foreign person is time-sensitive, unique and subject to FIRPTA reporting and withholding requirements. It is important for a foreign seller to consult with an experienced tax professional and real estate attorney to ensure that the sale transaction is executed efficiently and with minimum or no FIRPTA withholding.
When assisting foreign clients to apply for a Withholding Certificate, we analyze many factors to determine an optimal solution for reducing the withholding amount, including original purchase price of the property, length of ownership, capital improvements, closing costs and location of the seller’s residency.
- Rules governing FIRPTA Withholding
- How Foreign Investors Can Reduce or Eliminate FIRPTA Withholding Upon Sale of U.S. Real Estate
- Investment in U.S. Real Estate by Foreign Persons
- Foreign Investment in New York Real Estate: Tax & Legal Guide
- Format of Applications for FIRTPA Withholding Certificate
- 1031 Like-Kind Exchanges for Foreign Investors in U.S. Real Estate
- Exceptions from FIRPTA Withholding
- Definitions of FIRPTA Terms and Procedures