|
FOREIGN INVESTMENT REAL PROPERTY TAX ACT
Foreign Investment Real Property Tax Act or commonly known as FIRPTA is a U.S. tax law that states a foreign investor must have 10% of the selling price of the property withheld at closing and within twenty (20) days these funds must be sent to the Internal Revenue Service. If that happens, in some cases, it has taken more than two years for the seller to obtain their funds back.
To avoid this from happening, an
exemption request may be filed with the IRS on or before the date of
closing. What this request does is to present all the facts to the
IRS and requests that they determine what they feel is the correct
tax due. If the exemption request, Form 8288-B, is present at
closing, the closing agent usually the title company does withhold
the 10% funds, but are allowed to keep these funds in their escrow
account until the IRS has made their determination. At such time the
funds are then disbursed according to the IRS. Their determination
can range from zero to many thousands of dollars. It all depends
upon the capital gain or loss made on the sale. This process takes
anywhere from
An exception to this rule is if the buyer is going to live in the home 50% or more of the time for the next two years and the amount realized is less than $300,000.00. It doesn't exempt the seller from paying capital gains taxes only from having the 10% funds withheld.
If the property sold has been investment property and the seller has filed the appropriate tax returns with the IRS and if there have been rental loss carryforwards, these losses may offset any capital gains from the sale of the property.
In order to prepare the exemption request the following information is required: 1. Name & foreign address of seller and tax identification numbers (ITIN). 2. Property address. 3. Buyers name and address and tax identification numbers (ITIN). 4. What was paid for the property (substantiated with closing statement or tax rolls). 5. Capital improvements (must include invoices). 6. What the property is selling for (substantiated with closing statement or copy of contract). 7. Closing costs (substantiated by closing statement or from information prepared by the realtor). 8. Date of closing and name of title company.
Our fee to prepare this form is $285.00 and may be paid at closing.
(This information is not intended to include all of the FIRPTA laws, but only to give the reader a brief overview. For specific questions, please call Jeanne Kline or Barbara Hahl.)
ACCOUNTING & TAX SERVICES Enrolled to Practice before the Internal Revenue Service.
Phone 407 396 7522 Fax 407 390 0718 Email DeeJayTax@aol.com
|
