Page 4 - FIRPTA Guide AZ

What is FIRPTA?

FIRPTA, is the acronym for the Foreign Investment in Real of the seller’s status if they are a U. S. Citizen. W-9 is submit-
Property Tax Act which was created in 1980. This allows for ted by the seller to the withholding agent (buyer) to show
the United States to tax foreign sellers on a dispositions of the buyer that he/she is a U. S. Citizen.
U. S. real property interests. A disposition means “dispo-
sition” for any purpose of the Internal Revenue Code. This W-8BEN Form would be submitted by the seller to the
included, but not limited to a sale or exchange, liquidation, withholding agent (buyer) to notify the Buyer that the seller is
redemption, gifts and/or transfers. A U. S. real property NOT a U. S. Citizen. This form states “if you receive certain
interest includes sales of interests in parcels of real property types of income, you must provide Form W-8BEN to
as well as sales of shares in certain U. S. corporations that establish that you are not a U. S. Citizen. You may also be
are considered U. S. real property holding corporations. required to submit form W-8BEN to the withholding agent if
Persons purchasing U. S. real property interests from foreign you are a foreign person and you are the beneficial owner
persons, certain purchaser’s agents, and settlement officers of an amount subject to withholding.
are required to withhold 10 percent of the amount realized,
unless 1 million dollars and over is 15 percent of the amount Exemptions
realized. Withholding is intended to ensure U. S. taxation of What are the exemptions to FIRPTA?
gains realized on disposition of such interests.
If the property is owned by a U. S. Citizen, or a Resident
A Buyer or other transferee of a U. S. real property interest Alien (holder of a green card that has not been revoked),
is responsible to withhold the tax from the seller and to pay no FIRPTA withholding is required.
the tax to the IRS. If the amount realized is $300,000.00
or less and the buyer signs the IRS residency certificate, If the seller is a Foreign person, are there any exemp-
no withholding is required.If the amount realized is greater tions available?
than $300,000.00, but less than $1,000,000.00, and the
buyer signs the IRS residency certificate, 10% withholding is Yes, there can be an exemption to the FIRPTA withholding,
required on the full amount realized. If the amount realized
is $1,000,000.00 or greater, 15% withholding is required but the transaction must qualify. If the seller believes they
on the full amount realized, even if the buyer signs the IRS are entitled to an exemption, they should contact their tax
residency certificate. For all other sales, including those attorney, or a CPA as soon as they consider whether to sell
where the buyer does not sign the IRS residency certificate, the property or not. The exemption process can take time
15% withholding is required. and very specific documentation must be provided to the

It is important to remember that the responsibility for IRS before the seller can know if they have been approved
withholding under FIRPTA is the buyer’s, not the settlement for an exemption.
agent’s. If you choose to accept this responsibility, however,
you must properly and timely withhold and remit to the IRS.
W-9 Form-Seller would use to notify the Escrow Company

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