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If you are a foreign national who owns real estate in the U.S., you must get familiar with the Foreign Investment in Real Property Tax Act (FIRPTA). To ensure you are complying with federal law, talk to our Fairfax FIRPTA lawyer at Pontius Tax Law.
Our firm includes experienced tax attorneys, Enrolled Agents and former IRS Revenue Officers, so we have a first-hand understanding of how the IRS enforces FIRPTA. We can explain the requirements and ensure your real estate transaction is compliant.
FIRPTA applies to foreign businesses and individuals, which includes non-U.S. citizens or Lawful Permanent Residents, and foreign corporations, partnerships, trusts, and estates. Real estate transactions where the seller is a foreign owner will be subject to FIRPTA. The law ensures a portion of the sale price is paid directly to the IRS to cover the foreign seller’s capital gains tax liability.
Individuals who can prove a substantial presence in the U.S. over the preceding three years may be treated as U.S. citizens for tax purposes and be exempt from FIRPTA. Similarly, the law may not apply to businesses that have elected to be treated as a U.S. corporation for tax purposes. A Fairfax attorney with experience in FIRPTA transactions could advise whether your real estate transaction must be compliant with this law.
Sales, foreclosures, and repossession of many types of properties will trigger FIRPTA, including residential and commercial properties, farms, development sites, and vacant land. The law also applies to the sale of shares in a real estate investment trust (REIT), U.S. real estate holding companies, and interests in real estate partnerships and trusts.
The buyer must withhold a portion of the purchase price and transfer it to the IRS within 20 days of the closing. The withholding is 15% when the sale price is $1 million or more, and 10% when the price is below $1 million.
The buyer submits Forms 8828 and 8828-A with the funds they withheld from the sale price, and the IRS will send the stamped Form 8828-A to you for your records. You must include that copy when you submit your U.S. tax return.
A buyer need not withhold money if the price is less than $300,000 and they plan to live in it. You should ask the buyer to sign a residential use affidavit at or before the closing to ensure you can take advantage of the exemption. A FIRPTA attorney in Fairfax could assist you in drafting an affidavit for this purpose.
You can avoid seller withholding if you can prove your capital gains tax liability will be less than the withholding amount, and submit Form 8288-B to request the exemption. It may eliminate or reduce the withholding, but you still must file a return and pay the capital gains on the sale.
You must file Form 1040NR with the stamped copy of Form 8828-A after the closing so the IRS can calculate your tax. The IRS will either send you a bill for any amount owing, or a refund, if your tax is less than the amount withheld.
Non-compliance with FIRPTA can be costly, as the buyer is personally liable for any tax owed. As the seller, you could be subject to penalties for underpayment of taxes or failure to file a return. FIRPTA non-compliance also may affect your immigration status, so it is important to call our Fairfax attorney if you intend to engage in this sale.
Foreign nationals are allowed to sell real property in the U.S. but they must still comply with federal tax law. FIRPTA rules are complex, so it is wise to have a capable professional advising you. A Fairfax FIRPTA lawyer at Pontius Tax Law can ensure your real estate transaction is compliant. Reach out to us today for help with FIRPTA issues or to ensure you are handling it correctly from the beginning.
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.
