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FIRPTA Withholding

FIRPTA Withholding Tax Services

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Are you a foreign investor navigating the complexities of U.S. real estate transactions? Understanding FIRPTA (Foreign Investment in Real Property Tax Act) is crucial for your financial success and legal compliance. At George Dimov CPA, we specialize in guiding high-earning professionals and international investors through the intricacies of FIRPTA withholding.

Whether you’re a tech executive with global investments or a finance professional expanding your real estate portfolio, our expert team is here to ensure your transactions are smooth, compliant, and optimized for tax efficiency. Don’t let FIRPTA complications hinder your investment strategy – reach out today for personalized assistance.

What is FIRPTA?

FIRPTA, or the Foreign Investment in Real Property Tax Act, is a U.S. tax law designed to ensure that foreign persons pay their fair share of U.S. income tax when selling U.S. real estate. Enacted in 1980, FIRPTA requires buyers to withhold a portion of the sale proceeds when purchasing U.S. real property interests from foreign sellers.

For our international clients in the tech and finance sectors, understanding FIRPTA is essential for making informed decisions about U.S. real estate investments and ensuring compliance with U.S. tax laws.

How FIRPTA Withholding Works

Withholding Process

The standard FIRPTA withholding rate is 15% of the total amount realized (generally the sale price) from the sale. Here’s a quick breakdown:

  1. The buyer is responsible for withholding the tax.
  2. The withheld amount must be remitted to the IRS within 20 days of the sale using Form 8288 and Form 8288-A.
  3. The seller’s TIN (Tax Identification Number) is required for proper filing.
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Common FIRPTA withholding scenarios

Common Scenarios

FIRPTA withholding applies in various situations, including:

  1. Sale of U.S. real property by a foreign individual or entity
  2. Sale of shares in a U.S. corporation that is a U.S. Real Property Holding Corporation (USRPHC)
  3. Distribution of U.S. real property interests by foreign corporations

Certain exemptions exist, such as when the property is acquired for use as a residence and the sale price does not exceed $300,000.

Penalties for Non-Compliance

The standard FIRPTA withholding rate is 15% of the total amount realized (generally the sale price) from the sale. Here’s a quick breakdown:

  1. The buyer is responsible for withholding the tax.
  2. The withheld amount must be remitted to the IRS within 20 days of the sale using Form 8288 and Form 8288-A.
  3. The seller’s TIN (Tax Identification Number) is required for proper filing.
FIRPTA penalties for non-compliance
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FIRPTA Withholding for Buyers

Buyer's Responsibilities

As a buyer of U.S. real estate from a foreign person, your key responsibilities include:

  1. Determining the seller’s status (U.S. person or foreign person)
  2. Withholding the correct amount (typically 15% of the sale price)
  3. Timely filing of Forms 8288 and 8288-A with the IRS
  4. Providing the seller with a copy of Form 8288-A for their records

Exceptions and Special Cases

While the standard withholding rate is 15%, there are exceptions:

  • Reduced rate of 10% for properties intended as a residence with a sale price between $300,000 and $1 million
  • No withholding required if the property is acquired for use as a residence and the sale price does not exceed $300,000

Our team at George Dimov CPA can help you navigate these exceptions and ensure full compliance while optimizing your tax position.

FIRPTA Withholding for Sellers

Seller's Responsibilities

As a foreign seller of U.S. real estate, your main responsibilities are:

  1. Informing the buyer of your foreign status
  2. Providing accurate information for the FIRPTA forms
  3. Applying for a Taxpayer Identification Number (TIN) if you don’t have one
  4. Filing a U.S. tax return to report the sale and claim any refund of over-withheld tax

Withholding Certificates

To reduce or eliminate the withholding amount, sellers can apply for a withholding certificate using Form 8288-B. This is particularly useful for our high-earning clients who may have a tax liability lower than the standard withholding amount due to expenses, losses, or treaty benefits.

Filing Requirements

After the sale, foreign sellers must file a U.S. income tax return (typically Form 1040NR for individuals) to report the sale and pay any additional tax due or claim a refund of over-withheld amounts.

Why Choose George Dimov CPA for FIRPTA Withholding Assistance

With years of experience serving high-earning professionals in the tech and finance sectors, our team at George Dimov CPA offers:

  • Deep understanding of international tax laws and FIRPTA regulations
  • Tailored strategies for optimizing your real estate investments
  • Seamless coordination with legal and real estate professionals
  • Proactive planning to minimize tax liabilities and ensure compliance
George Dimov CPA Tax Specialists
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George Dimov

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Stan Shraybman, MBA, EA

Senior Tax Manager

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Senior Accountant

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Xintian Wang, CPA

Senior Tax Manager

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Common FIRPTA Withholding Questions

The seller must apply for an ITIN (Individual Taxpayer Identification Number) using Form W-7. Our team can assist with this process.

Yes, by applying for a withholding certificate using Form 8288-B. This is often beneficial for high-value transactions.

The IRS typically processes withholding certificates within 90 days, but delays can occur. Planning ahead is crucial.

Penalties include liability for the full tax amount plus interest, and up to $10,000 for willful non-compliance. Working with experienced professionals like George Dimov CPA is the best way to ensure compliance and avoid penalties.

Need more specific guidance? Contact us for personalized assistance with your FIRPTA-related questions.