By: Gina Dewar, DRE #02057793 NEWJOURNEY RE
As a real estate agent licensed in Texas, New Mexico and California, I have had my share of foreign investors (especially from Mexico). With this said, it has always been a priority for me for them to understand everything there is to know about investing in the United States, especially when it comes to taxes.
FIRPTA stands for the Foreign Investment in Real Property Tax Act. It is a United States federal law that imposes taxes on the sale of real estate by foreign individuals or entities. Under FIRPTA, a portion of the sale proceeds must be withheld for tax purposes, typically 15% of the property’s sales price. This withholding ensures that foreign sellers pay any applicable taxes on their gains from U.S. real estate transactions. It’s important to comply with FIRPTA regulations when buying or selling real estate involving foreign parties.
To get your money from a FIRPTA withholding, you’ll need to follow these steps:
1. Complete IRS Form 8288: As the seller of U.S. real property, you should complete Form 8288, “U.S. Withholding Tax Return for Dispositions by Foreign Persons.” You may also need to fill out Form 8288-A, “Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests.”
2. Submit the Forms: These forms should be submitted to the IRS along with the withholding amount within 20 days of the property’s sale or transfer. The forms will detail the transaction and the amount withheld.
3. Seek a Withholding Certificate: If you believe that the withholding amount is greater than your actual tax liability, you can apply for a withholding certificate using IRS Form 8288-B. This allows you to request a reduced withholding amount based on your estimated tax liability.
4. Wait for IRS Response: After submitting the forms and any requested documentation, the IRS will review your application. If approved, they will issue a withholding certificate specifying the reduced withholding amount.
5. Closing the Sale: Once you have the withholding certificate, provide it to the buyer and the closing agent. This certificate will guide the buyer on how much to withhold. The reduced amount will then be remitted to the IRS.
6. Claiming a Refund: After the sale is completed, you can file your U.S. federal income tax return (e.g., Form 1040-NR) to report your actual tax liability. If the withholding amount exceeded your tax liability, you can claim a refund for the overpaid amount.
It’s crucial to follow these steps carefully and consult with a tax professional or attorney experienced in FIRPTA matters, as the process can be complex.
It is essential to verify the latest requirements and procedures with the IRS. I am only a real estate agent and know the basics, that is why a tax professional will give you the updated information you need.
