(FIRPTA) Withholding on US property sale.
The United States of America IRS requires that any non-resident who sells an interest in US real property is subject to a FIRPTA withholding tax. FIRPTA applies to what it defines as a U.S. real property interest, which includes not only interests in land, but interests in buildings, mines, wells, crops and timber as well. This tax is 15% of the gross contract sales price (i.e. $60,000 on a property with a sales price of $400,000). This withholding tax amount is required to be forwarded to the IRS, by the Closing Agent, within 20 days of the date of closing. The withholding taxes are held until the IRS is satisfied that all taxes due on the sale, by the non-resident are paid. In order to apply for the return of the 15%, less any tax due, form the I.R.S, you can either:
- We can file an application for exemption from withholding on or before the date of closing, 8288b. This will ensure that the 10% withholding stays with the title company rather than being sent to the IRS. We normally get the permission to release the cleared funds back to you within 90 days. The IRS will not accept this application without the buyer’s and seller’s US tax ID numbers (ITIN) or applications for (ITIN) numbers attached to the application. Nonresident aliens generally obtain an Individual Taxpayer Identification Number (ITIN) for this purpose), but ITINs are no longer issued unless the applicant is filing a U.S. federal income tax return with the application or other specific exceptions apply. If a US resident is purchasing the property, then they need to supply their social security numbers. We suggest that you include these requirements into your sales contract.
- We can file your US tax returns for each year that rental income was received, reporting all income and expenses; file a final US tax return in the year following the year of sale, to report the sale and recover the balance of cleared funds. If you sold your property during 2007, then you would need to file your 2007 1040NR tax returns during 2008 and then apply for any refund due.
However, receiving a Withholding Certificate does not eliminate your requirement to file a final US income tax return to report the sale transaction. The sale of a U.S. real property interest by a foreign investor is a taxable event calling for the filing of a U.S. federal income tax return for the year of the sale. The amount of tax withheld may be credited against the seller’s federal income tax liability, which will reduce the amount of tax owed or may entitle the seller to a refund. When you file your final tax return, you may receive a further tax refund.