FIRPTA Withholding Facts: Selling Real Property in the USA

FIRPTA Withholding Facts: Selling Real Property in the USA

FIRPTA WITHHOLDING: TAX ON NON-RESIDENT ALIENS SELLING
REAL PROPERTY IN THE UNITED STATES


The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 authorizes the United States to tax foreign persons who are non-resident aliens selling U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property. Persons purchasing U.S. real property interests (transferee) from non-resident aliens (transferor), certain purchasers’ agents, and settlement officers are required to withhold 10% of the amount realized (the purchase/sales price of the real estate going to transferor) and remit that amount to the Internal Revenue Service within 20 days of the transaction. Withholding is intended to ensure U.S. taxation of gains realized on disposition of real property interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer, you must find out if the transferor/seller is a foreign person/non- resident alien. If the transferor is a foreign person/ non-resident alien and you fail to withhold, you may be held liable for the tax.


COVERAGE OF FIRPTA: DEFINITION OF “NON-RESIDENT ALIEN” (FOREIGN PERSON)

 A non-resident alien is defined for federal income tax purposes as an individual who is neither a U.S.citizen nor a resident of the U.S. within the meaning of the Internal Revenue Code. An alien individual is a resident of the U.S. for federal income taxes if he or she:
1. Has been issued a green card (been admitted as 
a Lawful Permanent Resident in the U.S.) at any 
time during or prior to the calendar year; or
2. Has maintained a “substantial presence” in 
the U.S., which means the alien (a) is physically present in the U.S. for 183 days or more during the calendar year or (b) if the alien is physically present in the U.S. for at least 31 days during the current year, the alien may be treated as 
a resident in the current year by the following calculation:
a) b) c)
Each day of presence in the current year is counted as a full day;
Each day of presence in the 1st preceding year is counted as 1/3 of a day;
Each day of presence in the 2nd preceding year is counted as 1/6 of a day.
If the total of (a) + (b) + (c) is 183 days or more,
the alien may be a U.S. tax resident unless the alien files certain required information with the IRS to claim the benefit of any relevant exception. If the foreign person is neither a U.S. citizen nor falls within description (1) or (2), he or she is a non-resident
alien and is subject to FIRPTA withholding unless an exception applies.
 

UNDERSTANDING FIRPTA WITHHOLDING: TAX ON NON-RESIDENT ALIENS SELLING REAL PROPERTY IN THE US

The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 authorizes the United States to tax foreign persons who are non-resident aliens selling U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property.Persons purchasing U.S. real property interests (transferee) from non-resident aliens (transferor), certain purchasers’ agents, and settlement officers are required to withhold 10% of the amount realized (the purchase/sales price of the real estate going to transferor) and remit that amount to the Internal Revenue Service within 20 days of the transaction.Withholding is intended to ensure U.S. taxation of gains realized on disposition of real property interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer, you must find out if the transferor/seller is a foreign person/non- resident alien. If the transferor is a foreign person/ non-resident alien and you fail to withhold, you may be held liable for the tax.


COVERAGE OF FIRPTA: 
DEFINITION OF “NON-RESIDENT ALIEN” (FOREIGN PERSON)

A non-resident alien is defined for federal income tax purposes as an individual who is neither a U.S. citizen nor a resident of the U.S. within the meaning of the Internal Revenue Code. An alien individual is a resident of the U.S. for federal income taxes if he or she: 1. Has been issued a green card (been admitted as 
a Lawful Permanent Resident in the U.S.) at any 
time during or prior to the calendar year; or  2. Has maintained a “substantial presence” in 
the U.S., which means the alien (a) is physically present in the U.S. for 183 days or more during the calendar year or (b) if the alien is physically present in the U.S. for at least 31 days during the current year, the alien may be treated as 
a resident in the current year by the following calculation:

a) b) c) Each day of presence in the current year is counted as a full day;Each day of presence in the 1st preceding year is counted as 1/3 of a day;
Each day of presence in the 2nd preceding year is counted as 1/6 of a day.If the total of (a) + (b) + (c) is 183 days or more, 
the alien may be a U.S. tax resident unless the alien files certain required information with the IRS to claim the benefit of any relevant exception. If the foreign person is neither a U.S. citizen nor falls within description (1) or (2), he or she is a non-resident 
alien and is subject to FIRPTA withholding unless an exception applies.

 

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