FIRPTA (Foreign Seller) "Cheat Sheet"
What is FIRPTA?
FIRPTA is the acronym for Foreign Investment in Real Property Tax Act of 1980 that deals with the disposition of a US real property interest by a foreign person or foreign corporation.
How do I deal with a FIRPTA transaction?
If the seller is a non-resident alien meaning no social security number or resident alien card (green card). Proceed as follows:
Property sale price is over $300,000.
- Foreign Seller must have a tax ID number or ITIN (Individual Tax Identification Number). If the seller does not have an ITIN they are to see an IRS approved acceptance agent to fill out a W7 form and bring the original to the title agent. The original W7 form, a check in the amount of 10% of the sale price, Form 8288 signed by the buyer and a copy of the HUD-1 must be sent to the IRS within 20 days of closing. If the seller does have an ITIN send a check in the amount of 10% of the sale price, Form 8288 signed by the buyer and a copy of the HUD-1 to the IRS within 20 days of closing.
- Foreign buyer purchasing from a Foreign Seller – both parties must have an ITIN. If the buyer does not have an ITIN they are to see an IRS approved acceptance agent to fill out the W7 form bring the original to the title agent. The original W7 form for the buyer must be submitted to the IRS with the documents listed above.
Property sale price is $300,000 and under.
- The 10% does not have to be withheld if the seller is a non-resident alien and the buyer signs an affidavit stating the purchase price is $300,000 or less, the property will be their personal residence, the buyer or buyer’s family member will occupy the property at least 50%of the number of days the property is in use during each of the first two 12 month periods following the date of purchase.
- If the buyer refuses to sign the affidavit 10% must be withheld and sent to the IRS. If this is the case follow the same steps for properties over $300,000.
FIRPTA withholding does not apply to anyone who is a US Citizen or a resident alien as they will have a Social Security Number.
The 10% withholding is never taken from the buyer’s funds it is a seller charge only.
We always suggest the foreign seller seek the advice of an accountant prior to closing.