Understanding FIRPTA:
Buying and Selling
Real Property in theU.S.as a Non-US Citizen/Resident
There are no general restrictions on foreign investment in the United States, unless that investment is in one of a few specific industries such as Radio and Broadcast Television, COMSAT, the Aviation sector, or Energy. The influx of capital is considered a welcome addition, and therefore there is very little legislation to navigate when purchasing U.S. real property as a foreign entity. Under U.S. federal law the only major restrictions to real property purchases by foreign entities impact buyers from countries with which the U.S. is at war, or who are subject to U.S. travel and trade restriction.
State law regarding such purchases varies considerably and also changes frequently, thus it is important to check state and local laws to ensure that a desired acquisition in a particular state is feasible. Some states limit foreign ownership of real property and have restrictions and reporting requirements which affect such purchases by foreigners. Some states limit the acreage a foreign entity can buy, or limit the purchase and control of a type of land such as agricultural or grazing lands. Generally, buying U.S. real property is a simple process for a foreign entity. The sale of this property at some future time is when problems can arise if the seller is not aware of the applicable law.
Selling Real Property - FIRPTA Basics
The Foreign Investment in Real Property Tax Act ("FIRPTA") is a speed-bump in the otherwise smooth ride of buying and selling U.S. real property. FIRPTA was enacted in an effort to curtail lost capital gain tax revenue from the sale of real property by foreign individuals, and entities.
FIRPTA requires a withholding tax apply at the time of sale. This tax withholds 15% of the GROSS sale price, (10% prior to February 16, 2016) which means that 15% is withheld even if you sell the property at a loss! In order to recover any portion of the 15% that exceeds the amount actually owed under capital gains tax, you must wait until the end of the year and file a US Income Tax return for a refund. Unfortunately, in operation, it can delay property sales as well as withhold tax that is not owed. Simply knowing about FIRPTA in anticipation of any sale can help alleviate what can otherwise be a massive problem.
In order to sell your US property you will need to complete IRS form W-7 to obtain an IRS Individual Taxpayer Identification Number (ITIN).
When should I apply for an ITIN?
You should complete Form W-7 as soon as you are ready to file your federal income tax return, since you need to attach the return to your application.
If you meet one of the exceptions to the tax filing requirement, submit Form W-7, along with the documents that prove your identity and foreign status. You are also required to include supplemental documents to substantiate your qualification for the exception, as soon as possible after you determine that you are covered by that exception.
Where can I get help with my ITIN application?
You can call the IRS toll-free at 1-800-829-1040 if you are in the United States. If you are outside the United States, call 267-941-1000 (not a toll-free number) for information and help in completing your Form W-7 and your tax return or to check on the status of your application six weeks after submitting Form W-7.
To read the new FIRPTA instructions, effective as of February 2016, please go to https://www.irs.gov/pub/irs-pdf/i8288.pdf
Assistance is also available at selected IRS Taxpayer Assistance Centers in the United States to provide in-person help with ITIN applications on an appointment basis only. You may also use the services of an IRS-authorized Acceptance Agent.
In Lee County the Taxpayer Assistance Center now operates by appointment only and is located at 4210 Metro Parkway, Ft. Myers, FL 33916.
Office Information: 239-938-7601.
Make Appointment: 844-545-5640
Monday-Friday - 8:30 a.m.- 4:30 p.m.
https://www.irs.gov/uac/contact-my-local-office-in-florida
IRS Authorized Acceptance Agents
Optionally there are companies that specialize in helping guide foreign sellers through the entire FIRPTA process. Helping them obtain their ITIN, IRS Withholding Certificate and preparing their Income Tax Return. Generally using one of these services means you will be refunded your 15% withholding tax within about 90 days. Depending on the value of your property fees can be substantial but many firms will, if possible, reduce their standard fees on lower priced properties.
Visit FIRPTA Solutions, https://firptasolutions.com
and 1031 Exchange Connection,http://www.1031connection.com/exchange_fort_myers/firpta_fort_myers.html
Contact us and we'll be glad to provide you with all the necessary information on selling your US property.
The Buyer's Agent Team of Southwest Florida gets a great deal of our business from referrals by our satisfied International buyers, so don’t hesitate, let us get started helping you today!
