The U.S. has a Foreign Seller Tax. (FIRPTA)- The Foreign Investment In Real Estate Tax Act is the law that allows potential income tax money to be withheld from foreign citizens when they sell property in the United States. This Foreign Investor Tax Act first became law in 1980 but was often unknown due to lower sales prices.
FIRPTA excludes all property that is sold under $300,000. This Act was not an issue in most U.S. cities because properties sold over the limit were not as common as they are 40 years later, in 2020. If FIRPTA affects you, you need to apply for a seller exemption. An exemption, if granted, is where the IRS lowers or eliminates the withholding amount. Withholding 15% of THE SALES PRICE from the Seller can be a lot of money!
Congress enacted the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) as Subtitle C of Title XI (the “Revenue Adjustments Act of 1980”) of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599, 2682 (Dec. 5, 1980).
If Affected By The Foreign Seller Tax:
- Meet with us to strategize a plan for you to sell your property
- We provide you with the necessary forms to sell your home and apply it to reduce or eliminate the withholding.
- Your property can be marketed but will not close unless there are withhold monies or an exclusion
- If the IRS declines your exclusion request, 15% of the sales price gets withheld at closing. If that is not enough you need to provide funds to finalize the sale
Reasons For Exclusion Approval
The IRS may agree with a person to substitute a different asset waiving the withhold. Also, if you sell the property at a loss, the 15% withhold amount exceeds this year’s tax liability or if you gift your profit to a spouse, the IRS grants your exclusion request.
Other FIRPTA Exemptions
YOU MUST STILL APPLY. However, Professional Athletes and Foreign Government-Related People are exempt from FIRPTA. Students, Teachers, Trainees and their Dependents who have lived in the U.S. for over 5 years are also exempt.
“Substantial Presence” exempts people who have lived in the U.S. for over 31 days “this year” AND 183 days in the last three years. The “days” are counted this way: each day present in the U.S. this year count as one. One day for every 3 days present in the U.S. counts as one for last year and one day for every 6 days present for the year before. If you meet the 31-day rule AND the 183-day rule you may be exempt.
How Do You Get Your Money Back?
Subsequently, you get your withheld money back if you are owed a tax refund after filing a standard U.S. Tax Return.
See our Blog called FIRPTA for more information.
DISCLAIMER: I know about the FIRPTA rules because I sell Foreign People’s Real Estate for them in Las Vegas, Nevada. Because I am not an Accountant or Attorney, I am unable to provide you with any tax or legal advice. Therefore, if you think FIRPTA might apply to you, please seek professional advice.
Revised 1-2-2020 Blog written by Kurt Grosse. Kurt Grosse has sold real estate in Las Vegas since 1996 and is a principal of www.HomesForSale.Vegas Feel free to contact Kurt or text him at 702-750-7599 with any questions.
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