FIRPTA Refund FAQs
If you need personalized assistance, feel free to contact our experts—we’re happy to guide you through the process!
What is FIRPTA?
FIRPTA, or the Foreign Investment in Real Property Tax Act of 1980, is a U.S. law that mandates tax withholding on the sale of U.S. real estate by foreign sellers. While often mistaken for a tax, FIRPTA is actually a withholding mechanism created by the Internal Revenue Service of the United States (IRS) to ensure that foreign individuals and entities meet their tax obligations on any gain from the sale.
Who is responsible for withholding under FIRPTA?
The buyer of a U.S. real estate property from a foreign seller is responsible for withholding 15% of the property's gross sale price at closing. This amount must then be submitted to the IRS in compliance with FIRPTA regulations.
Who is considered a foreign seller under FIRPTA?
The buyer of a U.S. real estate property from a foreign seller is responsible for withholding 15% of the property's gross sale price at closing. This amount must then be submitted to the IRS in compliance with FIRPTA regulations.
What if the seller is not a foreign person?
If the seller is not a foreign person, they can provide the buyer with a Certification of Non-Foreign Status. This certification confirms their exemption from FIRPTA withholding, and the buyer must retain it for their records.
What happens if the seller is a foreign person?
If the seller is classified as a foreign person, the buyer must withhold 15% of the gross purchase price unless an applicable exemption or reduction applies. The withheld amount must be forwarded to the IRS within the required timeframe to avoid penalties.
When must the withheld funds be submitted?
The buyer is required to submit the withholding amount to the IRS within 20 days following the property’s closing date. If a Withholding Certificate application has been filed, payment must be made within 20 days of receiving the IRS decision on the certificate.
What are the penalties for late submission?
If the withholding amount is not submitted on time, interest and penalties begin to accrue starting from the 21st day after the transfer date. These penalties are the responsibility of the buyer.
Are there exceptions to the 15% withholding requirement?
Yes, FIRPTA provides specific exemptions and reductions:
- If the sale price is $300,000 or less and the buyer intends to reside in the property for at least 50% of its use during the first two years, no withholding is required.
- If the sale price is between $300,001 and $1,000,000 and the buyer intends to reside in the property, the withholding rate may be reduced to 10%.
- If the sale price exceeds $1,000,000, the full 15% withholding applies, regardless of the buyer’s intent to occupy the property.
- A seller may also apply for a Withholding Certificate from the IRS to reduce or eliminate the required withholding.
What is a Withholding Certificate, and how does it work?
A Withholding Certificate allows a seller to request a reduction or exemption from the standard 15% withholding if their actual tax liability is lower than the withheld amount. The IRS will review the request and determine whether a reduced withholding amount is appropriate.
What services does TFG provide?
Our firm specializes in assisting clients with the FIRPTA process, ensuring compliance with IRS requirements. Our services include:
- FIRPTA Withholding Refunds – We handle the entire process to help you recover your FIRPTA withholding.
- ITIN Application & Renewal – Assistance in securing or renewing your ITIN for smooth tax compliance.
- Nonresident Tax Filing – Expert tax filing solutions tailored for nonresidents, allowing you to focus on your investments.
- FIRPTA Closing Documents & Withholding Forms – Preparation and submission of all required documents, affidavits, and certificates.
- Comprehensive Tax & Advisory Services – Personalized tax solutions to optimize your financial strategy.
Can you work with my existing accountant or CPA?
Yes! We frequently collaborate with other professionals. FIRPTA compliance involves many specific requirements, and we can assist with any part of the process to ensure everything is handled accurately and efficiently. Additionally, we can prepare the necessary FIRPTA documentation required for the sale and coordinate with the real estate agent handling or the title company handling the closing to ensure a smooth transaction.
What else should I be aware of?
Obtaining an Individual Taxpayer Identification Number (ITIN) is mandatory for both foreign sellers and buyers. As of November 4, 2003, all parties involved in a FIRPTA transaction must provide their name, address, and U.S. tax identification number on withholding tax returns, Withholding Certificate applications, and related IRS documents.
What if I don’t have a U.S. tax identification number?
If you do not have an ITIN, we can assist you. Our team includes certified acceptance agents who can verify your identity and complete the necessary paperwork to obtain your U.S. taxpayer identification number.