FIRPTA Resource Center

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The FIRPTA Group is a dedicated department of Cottrell Tax & Accounting, LLC that specializes in all things FIRPTA. Choose a topic from the resource center below to better understand these specialized services, provided year-round by our team of experts.

A withholding certificate is an application for a reduced withholding. It’s based on the actual gain of a sale instead of the selling price. The IRS form used for this is the 8288-B.

There are several advantages to filing an 8288-B:

  1. The money stays with your title company, instead of going to the IRS.
  2. The application can be filed as soon as a contract is signed. There’s no need to wait until closer to the sale date.
  3. Your company can get the money back within 45-90 days from closing.

The amount that will be refunded back is based on only the amount of the gain, not the sales price. If there is no gain, we can release all the funds. If there is a gain, the IRS will withhold the maximum capital gains rate of 20%, and we can refund the rest.

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Here is an example of how much you could get back with a FIRPTA withholding certificate. For details, and to run the numbers for a specific property sale, check out our FIRPTA calculator.

Let’s say you are selling a property for $400,000, which you bought for $275,000. For the sake of this example, we will assume you invested $30,000 into improvements, with closing costs of 6%, or $24,000. In this case, your gain would be $71,000.

    $60,000 15% of the $400,000 Selling Price

– $14,200 Your Gain of $71,000 x Maximum Capital Gains of 20%

= $45,800 Refunded from Title Company

Therefore, $60,000, which is 15% of selling price, would be withheld and put in escrow at the time of closing. Next, a withholding certificate would be filed with the IRS. 45 to 90 days later, the IRS would send a letter allowing the title company to release $45,800.

Then, you would have to file a tax return in the next year to get back all or a portion of the remaining $14,200. Please note that this depends on any other U.S. source income, as well as how high the gain is.

Still have questions? For more information, please see our video about FIRPTA.

If you are a nonresident alien and you have U.S. source income, you are required to file an annual US Tax Return, or 1040NR. However, you only have to file a 1040NR if you have U.S. source income. A foreign national who is not a U.S. citizen is considered a non-resident alien unless they pass either the green card test or substantial residency test.

Types of U.S. source income:

  • Gain from Sale of Real Property
  • Net Income from Rental (Total Income minus Total Expenses)
  • Other US source income – Dividends, interest, 1099 income, etc.

For more information about this topic, please watch our educational video, entitled Foreigner: Buying and Selling U.S. Real Estate.

If you rent your U.S. property, you are required to:

  1. File a 1040NR tax return every year
  2. Apply for an individual taxpayer identification number (ITIN)
  3. File state and local tax returns monthly, if you rent for less than six months
  4. Pay taxes on the profit from the rental’s total income received, minus total expenses

Additionally, you can write off expenses that include, but are not limited, to:

  • Operating expenses
  • Repairs and maintenance
  • Mortgage interest
  • Property insurance
  • HOA fees
  • Travel primarily related to your rental activity.

Let the FIRPTA group help you with all your rental needs. We can help you file your 1040NR tax returns, state sales tax and local tourist tax returns. We will also answer any questions you have about your rental income and expenses.

For more information about this topic, please see our video, entitled Foreigner: Renting U.S. Real Estate.

Stay Tuned! Videos are coming soon!

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