FIRPTA Certificate: A FIRPTA certificate is used to to notify the IRS that the seller of real estate is not a foreign-person. When a foreign person sells real estate, the IRS wants to know about it. Even though some capital gains income tax is exempt to foreign persons, real estate is not exempt. In order to ensure foreign sellers pay any necessary tax, the Internal Revenue Service implemented FIRPTA withholding. The main FIRPTA form is the Foreign Investment in Real Property Act. The purpose of this law is to facilitate accurate withholding and compliance for U.S. tax purposes.
When does a FIRPTA Certificate come into play?
Let’s say, you are about to sell your home. You are excited, until your agent starts sending you loads and loads of paperwork for you to sign. Sure, you’re pretty OCD and A-Type Personality — but this is a LOT of paperwork, even for you.
As you sift through the paperwork, you reach the “FIRPTA Certificate”
Certain sellers of real estate may file a withholding affidavit to reduce withholding on the sale of the property.
Mainly, the IRS wants to be sure that a foreign seller of U.S. property pays tax on the sale of a U.S. property.
While foreign persons can escape U.S. Tax on Capital Gains, there are some exceptions — and one major exception is U.S. Real Estate.
In order to avoid issues with FIRPTA, the seller will sign an Affidavit and certify status. Otherwise, various pesky IRS forms, such as Form 8288 may be required.
Certification of Non-Foreign Status
FIRPTA is the Foreign Investment in Real Property Act. If you are selling real estate in the United States, the IRS requires certain disclosures to avoid non-U.S. Persons from escape U.S. Tax on the sale of U.S. Real Estate. Many Non-Residents have no need to file a U.S. Tax Return, and the IRS is skeptical that selling U.S. Real Estate would motivate someone to just start filing tax returns.
What is a FIRPTA Affidavit
Technically, you complete a FIRPTA Affidavit to “Certify” non-foreign status.
Are you a Foreign Person?
But I’m not a non-U.S. Person, so that should be the end of it — right?
Nope. You have to certify that your are a Non-Foreign Person. The way you certify this is by submitting a signed FIRPTA Certificate,
Why Do you have to Certify?
Simple. If you receive the form, certify that you are a Non-Foreign Person, but then it turns you are a Foreign Person — your agent will not be held liable for not withholding sufficient funds.
What is FIRPTA Withholding?
If you are a foreign person, the agents and escrow have additional work to do. Certain amounts of the payment price is withheld and sent to the IRS. This is to ensure that foreign persons who may literally have no incentive to withhold tax, are made to pay tax on the gain.
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