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What is FIRPTA?

If the seller believes he/she does not have a tax liability, they The 8288 form must be completed with information not only
may be able to obtain an exemption. One example of this from the seller, but the buyer as well. The buyer must submit
would be if they purchased the property at a higher price and this form with their own ITIN number.
now he has a capital loss on the property.
There are penalties starts out with a $10,000.00 penalty just
In order for the seller to obtain exemption, he would complete for the failure to collect the tax and file the forms on time.
the 8288B form. This is the application for an Exemption/ Then there are additional interest and penalties tacked on to
Withholding Certificate. This form can be submitted by the that.
seller prior to closing or at closing. The settlement agent will
most likely want to see this form and either have the seller’s Either the buyer or seller may apply for a withholding
tax attorney send to the IRS or the settlement agent will send certificate. Normally it will be the seller’s responsibility to
it in. If the seller is simultaneously applying for a ITIN, these obtain the withholding certificate and provide it to the buyer
forms should be sent together. to avoid withholding.
The settlement agent will still hold 10% or 15% in the escrow The IRS acts on a withholding certificate request (Form 8288-
pending receipt of the Exemption Certificate. B) within 90 days after receipt of request, so this should be
Yes, the IRS can issue a Withholding Certificate specifying obtained as soon as the seller decides to sell the property.
that no withholding, or a reduced amount of withholding Can escrow hold the funds from the seller’s proceeds while
is necessary. A withholding certificate would normally be the seller goes about obtaining the withholding certificate?
available when, for example, taxes due on the seller’s gain
will be less than 10% of the sales price. If the buyer and seller specifically instruct that the buyer will
hold the funds from the seller and permit the seller the time
If the seller does not have an ITIN (Individual Tax Identification
Number) he/she must obtain one. To do that, they must to apply for the withholding, this should be done only upon
complete the IRS W-7. This is the application for an ITIN. careful review by the buyer’s and seller’s tax attorney or CPA.
They should do this as soon as possible upon acquiring the
property, but if they do not obtain the ITIN, it can be completed Below are Web links that will take you directly
and sent in with the withholding funds at closing. to the following FIRPTA Forms:
If the Buyer does not have an ITIN, he/she would need to Form 8288
complete the IRS W-7 form. Since it is the buyer’s responsibility U.S. Withholding Tax Return for Dispositions by
to collect the withholding funds from the seller and it’s the Foreign Persons of U.S. Real Property Interests
buyer’s responsibility to remit this to the IRS, the buyer needs http://www.irs.gov/pub/irs-pdf/f8288.pdf
to have his own ITIN to complete the forms.
NO WITHHOLDING IS REQUIRED IF ALL OF THESE Form 8288-A
APPLY: Statement of Withholding on Dispositions by Foreign
Persons of U.S. Real Property Interests
Is the property a residential property? http://www.irs.gov/pub/irs-pdf/f8288a.pdf

Is the sales price of the property under $300,000.00?
Form 8288-B
Is the buyer going to owner occupy the property as his Application for Withholding Certificate for Dispositions
primary residence? The buyer or family member has definite
plans to reside in the property for at least 50% of the number by Foreign Persons of U.S. Real Property Interests
of days the property is used during each of the first two years http://www.irs.gov/pub/irs-pdf/f8288b/pdf
following the date of transfer.
Form W- 8BEN
All of these questions must be yes, then the entire transaction Certificate of Foreign Status of Beneficial Owner for
is Exempt from FIRPTA withholding.
United States Tax Withholding
If all the documents are completed and if the buyer has http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
withheld the amount to the IRS from the seller, then the
transferee (buyer) must file Form 8288 and transmit the tax Form W- 7
withheld to the IRS by the 20th day after the date of transfer. Application for IRS Individual Taxpayer Identification
Failure to provide the complete and necessary forms could Number
cause penalties and interest to accrue against the buyer. http://www.irs.gov/pub/irs-pdf/fw7.pdf

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