FIRPTA (Foriegn Investments and Real Property Tax Act of 1980)
Foriegn investments and real property tax act (FIRPTA) 8288-B
INTERNATIONAL INDIVIDUALS SELLING U.S. REAL ESTATE INTERESTS
When the sellers of U.S. real estate are not U.S. citizen(s) or U.S. resident(s). Under United States Federal Tax Law, the withholding agent is required to remit 10% of the gross sale price tp the IRS no later than 20 days following the completion of the sale of the home, should the withholding agent not comply with the federal tax laws, then the IRS will place additional tax and penalties on the original 10% tax due.
Rather than forfeit to the IRS, 10% of the gross sale price, A more favorable option available to most international sellers is the FIRPTA (Foriegn Investment in Real Property Tax Act) 8288-B Application preperation and filing. The FIRPTA application (WHEN COMPLETED CORRECTLY) will evidence to the IRS that the international seller's tax is less than 10% of the gross sale price of the home. The 8288-B application filing must be filed to the IRS prior to or no later then the closing date of the sale, this process will allow for the sale to complete, however, instead of the title company remitting the 10% funds to the IRS, they will be allowed to hold back the 10% funds while the IRS review the sellers application and issue the Determination Letter or (AKA) IRS Withholding Certificate.
Upon the submission of the seller's 8288-B application, the IRS does advise that it may take 90 days in order to receive the issued IRS Determination Letter (AKA) Withholding Certificate. When the IRS Certificate has been received, the title company can then release the 10% withheld funds, ensuring that the IRS is paid the reduced tax liability displayed on the issued IRS Withholding Certificate prior to releasing the remainder of the withheld funds back to the sellers.
FIRPTA & SHORT SALES
Due to the extreme nature of a short sale, the IRS will usually take in consideration that the Short Sale Lender may stipulate the release of the 10%funds prior to th closure of the house sale. We do ensure that procedures are in place for the "Expedited 8288-B Application filing" in efforts to receive the issued Withholding Certificate prior to the completion of the sale, however, we recommend that you contact us as soon as you are aware of a potential short sale.