Florida’s FIRPTA Specialists
Our former Ernst & Young CPA has nearly a 100% success rate at getting our clients their funds back. Unlike 99% of other title companies and law firms, we keep the required money in Escrow instead of withholding and submitting to the IRS. That way you’re not waiting years to get it back from the IRS.
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We’re the only title company in Florida that specializes in FIRPTA. Nearly a 100% success rate getting our client’s funds back.
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What is FIRPTA?
The government recognized that because a foreign person doesn’t have to file a tax return, they wouldn’t have a way to collect taxes when a non-US Citizen sold a property, and if given the profits on a sale, they may never end up paying what they owe. To fix this, the US Government passed FIRPTA (Foreign Investment in Real Property Tax Act). This Act requires a withholding of a percentage of the sale proceeds (10% – 15% of the entire purchase price). This money is typically sent to the IRS and then it’s up to the seller to file the correct paperwork and try get it back. This process can take up to a few years if handled this way! This is NOT how we recommend handling FIRPTA.
How do I know if FIRPTA applies?
The next set of questions relate to purchase price, and how the property is going to be used.
Will the buyer be residing in the property over 50% of the year, and be willing to sign an affidavit attesting to this at the closing? If so, then the FIRPTA % will not need to be withheld as long as the purchase price of the property is below $300,000.
If the purchase price is above $300,000, then 10% – 15% is withheld.
What does it mean when the funds are withheld?
Artesian Title always holds this money in escrow, and DOES NOT send it to the IRS because of this reason. We can do this because of our partnership with Prithi Daswani, CPA.
Who is actually responsible for withholding the money?
Are there some exceptions to the 15% withholding?
The Seller can provide the buyer with an affidavit that states they aren’t a Foreign Person. They also need to provide their name, social security #/taxpayer ID #, and address.
Personal Residence Exception:
Under the Personal Residence Exception, no withholding is required when:
- Buyer is using the property as the their residence
- Sales price is $300,000 or less
- Buyer decides to waive withholding. (See additional requirements below)
Reduced Rate of Withholding:
Under this exception, a reduced withholding of 10% of the sales price is due when (1) the Buyer is buying property that will be used as their residence, (2) the sales price is greater than $300,000 but no more than $1,000,000, and (3) the Buyer chooses to waive withholding.
In order to qualify for either of these – the Personal Residence Exemption or the Reduced Rate of Withholding, the Buyer (or someone in their family) has to have plans to live at the property for at least 50% of the time over 2 years following the closing date. If that doesn’t happen, the Buyer could become responsible to the IRS for the difference between the amount that was actually withheld and the amount that should have been withheld, as well as interest and penalties. If the Buyer decides to use this exception, it should be done by an affidavit.
Seller Obtains Withholding Certificate:
Sometimes, the Seller has a withholding certificate from the IRS that eliminates or reduces the withholding requirement. If a Buyer chooses to rely on this exception, they should get a copy of the Withholding Certificate and hold onto it for at least 5 years.
Box checked for Foreign Corporation or Single-Member LLC:
Domestic corporations are not held to the withholding rules of FIRPTA. If a foreign corporation or single-member limited liability company that would normally be under FIRPTA checks the box on the form to be taxed as a domestic corporation, then withholding won’t be required. The entity must file Form 8832 with the IRS, get IRS approval, and give evidence of this to the buyer. The buyer should keep a copy of this for at least 5 years.
How can I reduce the amount I owe?
How did I end up on a Title Company’s website for FIRPTA?
What if I already have an Accountant/CPA?
What else will I have to do in the FIRPTA process?
What is a withholding certificate, and who can apply for one?
What is the deadline for filing for an application for reduced withholding?
When must the 15% withholding (or reduced withholding if applicable), be sent to the IRS?
If a Foreign Person sells Florida real estate at a loss, and obtains a 0-withholding certificate, do they still have to file a US tax return reporting the sale?
A husband and wife are both on the title to real estate property in the USA. The husband is a foreign person and the wife is a U.S. citizen. They’re selling the property for $500,000. What is the withholding amount?
What does a CPA do with FIRPTA?
We can only speak to what we know Prithi Daswani CPA does:
- Prithi Daswani CPA Prepares ALL Required FIRPTA Forms, Affidavits, and Certificates
- Don’t Pay Unnecessary IRS Taxes, Penalties, or Interest
- Get Back Your FIRPTA Funds FASTER!
- Personalized Service Saves You Time, Money, and Frustration. Yes…you actually get to speak to a real estate tax accountant.
- Online Technology Allows Us to Help You Anywhere In The World
- We Work With You During The Entire Process
- If Required, We Apply For Your ITIN Tax Id Number – All In One Place
- We Can Work With Your Current CPA or Tax Accountant to Finish Your FIRPTA Withholding Certificate
How do you work with Foreign Nationals?
The owners of Artesian Title are from Europe and South America originally, so they are familiar with all aspects of buying and selling real estate from abroad. At Artesian Title:
- Our Attorneys know the rules and regulations that are required for legal signatures on US documents for every country in the world. We work with you upfront to make the proper arrangements to get all legal documents signed.
- Currency Conversion — We work with 3rd party companies that beat EVERY major bank on currency conversions so you don’t get ripped off when you’re selling your property. You would be shocked at how many title companies/law firms don’t know anything about this.
- We speak your language (or we can get someone that can). Our internal team fluently speaks English, Spanish, Portuguese, Hindi, French, Dutch and Mandarin.
- Starting in 2020 we will be able to perform Real Estate closings electronically. That said, FRAUD will be a big deal to us. Anticipate many checks and balances to be required in order for this to occur.
What if the Seller is a USA LLC?
Single-Member LLC: A single-member US LLC is considered “disregarded” by the IRS for tax purposes. If the Seller is a single-member LLC, then you have to look at that single member. If they’re a “Foreign Person,” then the FIRPTA withholding rules apply the same as if they were the seller themselves.
Multi-Member LLC: A US LLC with more than one owner is not considered “disregarded”, and is taxed differently than single-member LLCs. The FIRPTA rules about withholding do NOT apply to multi-member USA limited liability companies.
What if only some of the sellers are “Foreign Persons”?
Usually, withholding is required for each “Foreign Person” based on their % of ownership. For example, if there are 4 joint-owners, each owning 25%, and 1 of the Sellers is a “Foreign Person”, then the Buyer only has to withhold 25% of the required withholding percentage. If the Sellers own the property as a married couple, the IRS says each spouse owns 50%. In this case, if only one spouse is a “Foreign Person”, then 50% of the required withholding would be required.
Are Tax Identification Numbers (ITIN/TIN) required for all parties?
The IRS requires all Buyers and Foreign Sellers of U.S.A. property to give their TINs, names, and addresses on all forms when selling a property. It’s best to have the TINs for all parties at the time of closing, but it is still possible to close without them if the following applies:
- If the Buyer doesn’t have a TIN, they have to send in the proper withholding forms within 20 days after closing. The buyer will also need to separately send in a Form W-7.
- If the Seller doesn’t have a TIN, the Buyer has to send in the proper withholding forms within 20 days after closing, and leave the Seller’s TIN information blank. The seller will have to get a TIN in order for the IRS to process the funds and will follow up with the Seller to make sure they do so. Title Companies/Law Firms should let the Seller know they will need to submit a separate application for a TIN by the time of closing.
Does FIRPTA apply to a personal residence?
Whenever a Foreign Person owns and wishes to sell property in the US, both residential and commercial, FIRPTA applies in almost all transactions.The amount withheld isn’t the tax itself, but is a payment on account of the taxes that will ultimately be due from the Seller.
What’s the definition of a “United States Person”?
- a U.S. Citizen
- a resident alien who has a Green Card
- a resident alien who meets the Substantial Presence Test (see * below)
- a USA corporation, partnership or other legal entity (EXCEPT a “Disregarded Entity”-any single-owner domestic business entity, such as a single-member limited liability company)
- a Disregarded Entity, if the owner qualifies as a “United States Person” under what’s stated above
- a foreign entity which has determined to be treated as a domestic corporation
*The Substantial Presence Test – Under FIRPTA, a “Foreign Person” is considered a “U.S. Person” for the calendar year of a sale if they are present in the U.S.A. for at least:
- 31 days during the year of sale AND
- 183 days during the 3-year period that includes the year of sale and the 2 years preceding the year of sale, but only counting:
- All days during year of sale
- 1/3 of the days during the first preceding year, AND
- 1/6 of days during the second preceding year
When counting days, you can’t include days that the Foreign Person is in the U.S. as a representative of a foreign government (example: a foreign diplomat), as a teacher, or as a student under a J, Q, F or M Visa, or as a professional athlete in a charitable sports event.
Does FIRPTA apply if the seller is in a short sale?
Does FIRPTA apply if the seller is in a short sale?
Does FIRPTA apply if the Seller is a Foreign Corporation?
FIRPTA applies if the company did not check the box to be taxed as a domestic corporation. If they did decide to be taxed as a domestic corporation, it has to be documented in the transaction’s file and they must provide evidence of it on or before closing day.
FIRPTA says that a Foreign Person selling a US property has to have 15% of the “amount realized” withheld. What is the “amount realized”?
Typically, when it comes to FIRPTA withholding, the “amount realized” is the sales price/ contract purchase price.
Is it possible for a Foreign Seller to have a social security number?
If the Seller is foreign, they most likely don’t have a social security number. Foreign citizens doing business and earning income in the United States have taxpayer identification numbers (TINS). These numbers may look like social security numbers.
Does FIRPTA apply if the Seller is taking a loss when they sell their property?
FIRPTA doesn’t automatically exempt a withholding from a Seller if they have a loss or zero gain on the sale of their property. Consulting with a CPA (we recommend Prithi Daswani, CPA) about applying for a withholding certificate is the best thing to do in this situation, and needs to be done early on in the transaction.
How does a Foreign Seller get their money back from the IRS if more money was withheld than what was owed?
The seller can consult with their CPA, and before closing, file an 8288-B Application for a Withholding Certificate to request a reduced amount or no withholding. They can also file a tax return the following year to obtain any refund due.
The Seller says they’re a USA Citizen, but they live in another country. Does FIRPTA apply?
Current residency is not a good indicator of FIRPTA status because USA citizens might be living in other countries.
Does FIRPTA apply when the transaction is between a Foreign Seller and a Foreign Buyer?
The same FIRPTA rules apply, and both parties are required to have TINs.
Does FIRPTA apply if a Foreign Seller only own a portion of the property being sold?
The same FIRPTA rules apply, and the Foreign Seller will owe withholding on their % of their ownership of the property.
What makes us better?
Artesian Title doesn't have to share profits with referral services, so we pass savings to our clients with up to a 20% rebate from their closing costs. Cool huh?
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