Page 24 - Jovany Guzman Seller Guide

What Is FIRPTA And

Who Does It Apply To?

FIRPTA is the acronym for the Foreign Investment in Real Property Tax Act which was created in 1980. This
allows for the United States to tax foreign sellers on dispositions of U.S. real property interests. A disposition
means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale
or exchange, liquidation, redemption, gifts and/or transfers. A U.S. real property interest includes sales of
interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered
U.S. real property holding corporations. Persons purchasing U.S. real property interests from foreign persons,
certain purchasers’ agents, and settlement officers are required to withhold 10 percent of the amount real-
ized. Withholding is intended to ensure U.S. taxation of gains realized on disposition of such interests. The
transferee/buyer is the withholding agent.

The transferee must deduct and withhold a tax equal to 10% (or other amount) of the total amount realized
by the foreign person on the disposition. The amount realized is the sum of (1) The cash paid, or to be paid
(principal only), (2) the fair market value of other property transferred, or to be transferred, and (3) the
amount of any liability assumed by the transferee or to which the property is subject immediately before and
after the transfer. The amount realized is generally the amount paid for the property. If the property trans-
ferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transfer-
ors based on the capital contribution of each transferor. These rules are general, however some exceptions
may apply to different scenarios.

Below are Web links that will take you directly to the following FIRPTA Forms:

Form 8288
U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
http://www.irs.gov/pub/irs-pdf/f8288.pdf
Form 8288-A
Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests
http://www.irs.gov/pub/irs-pdf/f8288a.pdf
Form 8288-B
Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
http://www.irs.gov/pub/irs-pdf/f8288b/pdf
Form W- 8BEN
Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
Form W- 7
Application for IRS Individual Taxpayer Identification Number
http://www.irs.gov/pub/irs-pdf/fw7.pdf

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