FIRPTA Witholding

What is it?

It is a withholding levied by the Internal Revenue Service to facilitate the payment of capital gains income taxes by non-U.S. Taxpayers (“foreign persons”).

How much tax is withheld?

Ten percent (10%) of the gross Sales Price for individuals or Thirty-five percent (35%) of the gain for non-individuals

To whom does it apply?

Any “foreign person ” non-U.S. Taxpaying individual or entity (nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate)

  1. Does not include resident alien individual

How does it work?

At settlement, the settlement agent is required by law on behalf of the Purchaser to withhold the prescribed funds from any non-US Taxpayer unless:

  1. The Sales Price of the Property is less than $300,000.00; AND,
  2. The Purchaser or a member of their family will occupy the property as their principal residence (at least 50% of number of days used for first 24 months).

OR

  1. The Seller has applied for (Form 8288-B) and obtained an Exemption Certificate from the Internal Revenue Service indicating that there is no tax liability or that the tax liability is less than 10%.
    1. IRS will normally act on an application within 90 days (usually 4-8 months)

What happens to the money withheld?

Settlement Agent or Purchaser must forward the funds withheld along with a Forms 8288 and 8288-A to the Internal Revenue Service by the 20th day following settlement UNLESS the Seller has already applied for an Exemption Certificate. If Seller has already applied for an Exemption Certificate, Settlement Agent is permitted to hold the money in escrow rather than forward the funds to the IRS until the Exemption Certificate is issued.