When you own property in the U.S. and are not a citizen or permanent resident, the law imposes some additional requirements when you sell the property. Navigating the process can be confusing for everyone involved.

A Bethesda FIRPTA lawyer knows how to handle real estate transactions that trigger the Foreign Investment in Real Property Tax Act. Call our tax attorney to get advice when you are ready to sell real estate.

What FIRPTA Does

A property owner must pay tax on the profits they make on a sale, but if the owner is not a citizen or permanent resident, the government previously had no leverage to force them to pay the tax. The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 provides a means for the U.S. Treasury to ensure it gets the tax owed on these transactions.

FIRPTA likely applies if the owner of a property is a citizen of another country and not a permanent resident of the U.S. Foreign corporations, partnerships, trusts, and estates that own property in the U.S. also must comply with FIRPTA.

FIRPTA applies to real estate like homes, residential properties, undeveloped land, mineral rights, and the rights to other natural deposits. This law also applies when a foreign person or other entity sells stocks or shares in a business or partnership with holdings in real property. A Bethesda attorney could review a transaction and advise whether FIRPTA might apply to it.

How FIRPTA Works

When FIRPTA applies to a transaction, the buyer usually must withhold 15 percent of the purchase price and pay it to the Internal Revenue Service (IRS). The buyer would use Form 8288 and 8288-A, and must file the forms and pay the withholding within 20 days of the closing. The IRS sends the seller a copy of the form which they attach to their tax return for the year to prove they paid tax on their gain.

FIRPTA compliance is the obligation of the U.S. buyer. Failing to withhold the funds or file the forms and make timely payment may subject the buyer to penalties. The buyer could be responsible for paying the taxes the seller owes, plus interest and a fine of up to $10,000 if the IRS finds the noncompliance is willful.

It is the buyer’s responsibility to find out if a foreign owner is the seller. Most standard real estate transfer agreements contain a statement asking the seller to affirm that they are a U.S. citizen or legal permanent resident. Sellers must make truthful affirmations providing the buyer with legal notice that FIRPTA may apply.

Exemptions That Apply to FIRPTA

The law makes certain transactions exempt from FIRPTA. If the property being sold is a residence, the sales price is less than $300,000, and the buyer plans to live in the property, there is no need for the buyer to withhold FIRPTA tax. This exemption is not available if the buyer is a corporation or partnership.

In some cases, a buyer or seller can get a Withholding Certificate that exempts the buyer from withholding a percentage of the purchase price or reduces the amount they must withhold. The seller applies to the IRS for the certificate. The IRS might issue a certificate if the:

  • Seller made little or no profit on the sale
  • Seller’s profits are exempt from U.S. tax
  • Withholding 15 percent is likely to exceed the seller’s U.S. tax liability

The IRS issues Withholding Certificates on a case-by-case basis, and there is no guarantee a particular applicant will receive one.

Other exemptions apply in some cases when the property sold is an interest in a corporation or partnership, and in certain other circumstances. Work with a knowledgeable Bethesda attorney to find out whether a FIRPTA exemption might apply to a particular transaction.

Speak With a Bethesda Attorney to Ensure FIRPTA Compliance

FIRPTA is confusing to many people, because it is unusual for a buyer to be responsible for paying a seller’s tax. However, the IRS has limited enforcement power over foreign individuals and companies, so it expects the U.S. buyer to ensure the seller’s tax is paid.

Consult a Bethesda FIRPTA lawyer if you are a foreign property owner planning to sell. Pontius Tax Law understands your FIRPTA obligations and could investigate whether an exemption might apply. Call today to get started.

Attorney John Pontius

Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC,  Rockville, MD, Bethesda, MD, Fairfax, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.

Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.

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