Understanding FIRPTA - Foreign Investment in Real Property Tax Act of 1980
Explore the key aspects of FIRPTA - from when it applies to withholding requirements, sale of U.S. real property by non-U.S. persons, and common indicators of U.S. status. Gain insights on what constitutes real property, certification of non-foreign status, and more under this tax act presented by Lori B. Miller.
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FIRPTA FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980 PRESENTED BY LORI B. MILLER
FIRPTA WHEN DOES IT APPLY WHEN DOES IT NOT APPLY WITHHOLDING REQUIREMENTS REDUCED WITHHOLDING
WHEN DOES IT APPLY SALE OF U.S. REAL PROPERTY BY A NON-U.S. PERSON
Sale of U.S Real Property by Non U.S. Person United States (U.S.) ANYTHING IN THE UNITED STATES OR U.S. VIRGIN ISLANDS
Sale of U.S Real Property by Non U.S. Person WHAT IS REAL PROPERTY? LAND BUILDINGS AND OTHER PERMANENT STRUCTURES TIMESHARE (Fractional interest) BOAT SLIP (Long-term lease)
REAL PROPERTY CONTINUED GROWING CROPS AND TIMBER MINES, WELLS, AND OTHER NATURAL DEPOSITS SOME PERSONAL PROPERTY ASSOCIATED WITH THE USE OF REAL PROPERTY-SUCH AS FARM EQUIPMENT
Sale of U.S Real Property by Non U.S. Person NON-U.S. NOT A U.S. CITIZEN NOT A U.S. RESIDENT
COMMON INDICATORS OF U.S. U.S. PASSPORT U.S. PERMANENT RESIDENT CARD (GREEN CARD) ADDRESS IN THE U.S. FILE U.S. INCOME TAX RETURNS
NOT INDICATORS OF U.S. STATUS SOCIAL SECURITY NUMBER TAXPAYER IDENTIFICATION NUMBER (ITIN)
CERTIFICATION OF NONFOREIGN STATUS Section 1445 of the Internal Revenue Code provides that a transferee (buyer) of a U.S. real property interest must withhold tax if the transferor (seller) is a foreign person. To inform the transferee (buyer) that withholding of tax is not required upon my disposition of a U.S. real property interest, I, ________________________, hereby certify the following: 1. I am not a nonresident alien for purposes of U.S. income taxation; 2. My U.S. taxpayer identifying number [Social Security number] is ______________; and 3. My home address is: __________________________________________________ I understand that this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement I have made here could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete. Dated: _____________________ ___________________________ The transferee must retain this certification until the end of the fifth tax year following the tax year in which the transfer takes place. The transferee must retain the certification, and make it available to the Internal Revenue Service when requested in accordance with the requirements of Section 6001 and regulations thereunder. Note, a transferee may not rely upon a transferor's certification if prior to or at the time of the transfer the transferee either has actual knowledge that the transferor's certification is false; or receives a notice that the certification is false from a transferor's or transferee's agent, pursuant to Treas. Reg. 1.1445-4.
AGENT LIABILITY IF KNOWLEDGE THAT CERTIFICATION IS FALSE!
Sale of U.S Real Property by Non U.S. Person DEFINITION OF PERSON PARTNERSHIPS TRUSTS CORPORATIONS ESTATES
WHEN DOES FIRPTA NOT APPLY? COMMON EXCEPTIONS GIFT- NO MONEY OR OTHER CONSIDERATION 1031 EXCHANGE (NOTICE TO IRS IS REQUIRED)
EXCEPTIONS CONTINUED SALE PRICE $300,000 OR LESS AND BUYERS/BUYER S FAMILY INTENDS TO USE AS A RESIDENCE BUYER S FAMILY INCLUDES -BROTHERS -SISTERS -SPOUSE -ANCESTORS -LINEAL DESCENDANTS
Example Justin Trudeau is a Canadian citizen. He is selling his Monterra condo unit for $275,000. Rob Rogers is looking to move his elderly mother-in-law to Whitefish so that he and his wife can help care for her. Rob purchases the condo for $275,000. Rob s mother-in-law will use the condo as her full time residence. Does the withholding exception apply?
STATEMENT REGARDING USE AS A RESIDENCE ACKNOWLEDGMENT OF BUYERS [Treasury Regulation Sec. 1.1445-2(d)] We, the undersigned, represent and acknowledge that: 1. We are individuals purchasing the U.S. real property commonly known as ____________________________________________for use as a residence. 2. We have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of the sale (calculated without including the number of days the property will be vacant). 3. If we do not in fact use the property as a residence, the I.R.C. Section 1445(a) withholding tax may be collected from us. Dated: ___________________ ___________________________________ Print Name __________________________
CALCULATION USE AS A RESIDENCE 50% OF THE NUMBER OF DAYS THE PROPERTY IS USED BUYER S PERSONAL USE 30 DAYS, RENTAL USE 20 DAYS TOTAL USE 50 DAYS BUYER S 30 DAYS IS MORE THAN 50% BUYER S PERSONAL USE 30 DAYS, RENTAL USE 35 DAYS TOTAL USE 65 DAYS BUYER S 30 DAYS IS LESS THAN 50%
WHAT ARE THE OBLIGATIONS IF FIRPTA APPLIES .
BUYER IS REQUIRED TO WITHHOLD A PORTION OF GROSS SALE PROCEEDS 10% IF UNDER 1M AND USE AS A RESIDENCE REMIT AND REPORT TO THE IRS WITHIN 20 DAYS OF THE DATE OF CLOSING 15% IF OVER 1M OR NOT USE AS A RESIDENCE
LEGAL VS. FINANCIAL OBLIGATION BUYER LEGAL OBLIGATION TO WITHHOLD SELLER FINANCIAL OBLIGATION
EXAMPLE BUYER PURCHASED A HOME IN 2008 FOR $400,000 $0 TAX OWED BUT WITHHOLDING IS $37,500 (10%) or $56,250 (15%) BUYER SELLS HOME IN 2017 FOR $375,000 LOSS OF $25,000 ($400,000-$375,000)
EVEN WORSE SAME FACTS AS IN PREVIOUS EXAMPLE, BUT BUYER FINANCED THE PURCHASE. $350,000 BALANCE OWED ON THE LOAN NOT ENOUGH CASH FOR WITHHOLDING
APPLICATION FOR REDUCED WITHHOLDING APPLICATION FILED PRIOR TO CLOSING WITHHOLD BUT FUNDS ARE NOT REMITTED TO THE IRS UPON RECEIPT OF CERTIFICATE, RETURN FUNDS TO SELLER
ALL PARTIES MUST HAVE TAXPAYER IDENTIFICATION NUMBERS EIN SSN ITIN
SAMPLE BUY-SELL LANGUAGE Buyer acknowledges that the Seller is a foreign person and is subject to section 1445 of the Internal Revenue Code. Under section 1445 and the accompanying regulations, the Seller may be entitled to a reduced withholding. Buyer and Seller agree that a total of 10% or 15% of the gross sale proceeds shall be withheld at closing and shall be held by the Seller's attorney until Seller obtains a withholding certificate from the IRS that reduces or eliminates the withholding. Buyer agrees to provide information, as necessary, for Seller s application for the withholding certificate, including, but not limited to Buyer s Social Security Number or Individual Taxpayer Identification Number (ITIN). Upon receiving the withholding certificate showing a $0 withholding amount Buyer and Seller agree to release the withheld funds to the Seller. In the event that the withholding certificate shows a withholding amount greater than $0, Seller s attorney shall remit those funds to the IRS and return the balance of the withheld funds to Seller.
Lori B. Miller, P.C. The preceding information is general information, and may not apply in all circumstances. This information is current through May 1, 2017. For more information or to discuss a specific withholding matter, contact Lori B. Miller at (406) 730-2572 or lori@lorimillerlaw.com. For forms and other general information, visit our website at www.lorimillerlaw.com.
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