FIRPTA is when a foreign citizen or company sells a U.S. real estate property. The buyer must withhold 10 percent (if the seller is an individual) or 35 percent (if the seller is a business entity). The FIRPTA rule applies even if the property is a sold at loss. The seller may request refund after the 10 percent or 35 percent have been paid to the IRS and a tax return for the following year has been filed. If you fall under any of the exemptions, you will likely not be liable for the FIRPTA taxes: when the sale price is less than $300,000; when the real estate property is a foreign corporation; if the transferer gives you penalties; when the IRS gives you withholding certificate with excuse; if the corporation is not a U.S. real property holding company; when the seller provides a legal notice from the IRS; if the property is partnership or with a publicly traded trust; when the U.S. property is zero. The best way to avoid FIRPTA would be if you have a U.S. citizen or hold a green card. But for any other foreign sellers who cannot provide such documentation, we have seen solutions for avoiding or at least reducing the FIRPTA if: At $300,000 they are selling the property for $300,000 or less and the buyer signs an affidavit, confirming that he or she will use that property as his or her main residence minimum period of two years after the sale; Form 8288, when a foreign seller can reduce FIRPTA withheld amount if they apply for a withholding certificate (Form 8288-B). This means that they would need to first have a tax identification number. If they do not, they should apply for one as soon as possible before the closing of the deal. This may take between four to six weeks for the application to be processed and issued. And for the withholding certificate itself, it will take up to 90 days for the IRS to act. I strongly recommend you speak with a legal tax adviser with experience in this sector.
