FIRPTA - FAQs
1) What is FIRPTA? FIRPTA stands for "Foreign Investment in Real Property Tax Act" of 1980. It directs when a whitholding must take place from a foreign sellers sale proceeds at the time of closing. This withholding is done to help ensure that the foreign individual pays their taxes due (if any) on the profit made from the sale of the U.S. property. The amount withheld is often times much more than the actual tax due, meaning the foreign seller is most likely entilted to a significant refund upon filing a U.S. Tax Return. CPA Accounting Services can prepare your U.S.Tax Return and help you generate the largest refund possible! We can begin helping foreign sellers as soon as they are thinking about selling their U.S. based real estate, so call us today!
2) Who is responsible for the Withholding? The Buyer (Transferee) of the property is the party responsible for the withholding. In Arizona, this is almost always done through a Title/Escrow Company during the closing process. The amount withheld can be as high as 15% of the SALES price of the property. For example, if your sales price is $400,000 a 15% withholding would result in $60,000 withheld from you at your closing. The buyer is then responsible to submit the amount withheld to the IRS within 20 days.
3) Are there ways to reduce the Withholding percentage? Yes! Per IRS rules, there are certain circumstances where the withholding percentage can be reduced.....sometimes even down to zero percent. We analyze the facts and circumstances of your sale so you can make sure the withholding amount being applied is correct, and that the buyer is not over withholding from you.
4) What are Withholding Certificates? After the withholding is sent to the IRS, you prepare a tax return to calculate the true tax liability owed. The actual amount owed is often much less than the amount that was withheld from you, which results with you getting a refund of the difference from the IRS. This tax return is prepared during the tax season for which your property was sold. If you sell very early in a calendar year, say January or February, you are withhout those withheld funds until you file a tax return the following year.
A withholding certificate application is a way to ask the IRS if you can get some, or all, of that withholding back sooner than having to wait until next tax season.
We anlayze each of our clients circumstances to see if applying for a withholding certificate makes sense to try or not. We do not want our clients wasting their time and money on a withholding certificate application if it doesn't make sense for them to do so. Some of these considerations include; does a Withholding Certificate make sense during all times of the year? Will the Title Company allow a Withholding Certificate to be used? Is the IRS currently operating efficiently enough for the Withholding Certificate application to be effective?
5) How can CPA Accounting Services help me? We can help you every step of the way! We can help you obtain your Individual Tax Identification Number (ITIN), consult with you on what you will need to know during the sale of your Arizona property, prepare a Withholding Certificate Application for you if it makes sense to do so, and finally, we can prepare your required U.S. Tax Return in order to get your tax refund!
6) Can we help buyers of U.S. property being sold by foreign individuals? Yes! If you are a buyer of a U.S. property that is being sold by a foreign owner, you are responsible for the FIPRTA withholding. Your responsibility includes filing certain tax forms with the IRS as well as remitting the forms and the withheld funds to the IRS. We can prepare the required IRS forms for you and guide you through the process.
Please call or email us with your questions and a no obligation quote for services! 623-810-2039 ClintGould.CPA@gmail.com