Carlos Cornejo's Blog

FIRPTA Sellers

What is FIRPTA?

They are the initials of the tax law on foreign investment in real estate of 1980 (Foreign Investment in Real Property Tax Act.)

Who does the FIRPTA affect?

Affects FIRPTA to any non-resident foreign individuals and foreign companies not considered national corporations. From the tax point of view (tax return) when a person is not resident or a corporation or foreign company sells a property within the United States, shall be subject to the provisions of the FIRTPA

How does it affect?

At the time of the formal recording (closing of transaction) to the seller you will be a withholding of 10% on the selling price, in transactions under $1,000,000 and 15% if the sale price is over $1,000,000. "For example, a"foreign investor"the closing of the transaction agent sells property for $350,000 (company or attorney before the title) will retain $35,000 in a special account called"deposit in custody"(escrow account), until the" foreign investor"file your income tax in January of the year following timetable l close the sale.

What is the difference between withholding and tax?

Retention is the mechanism by which the Treasury (IRS) "obliges" individual or foreign company to resubmit your return to determine if there is a gain or loss on the transaction.
Once the Declaration is made and the IRS determines the amount to be charged as tax, the differential between the retention and the tax is reinstated to the seller.

Can you avoid this retention?

It is very important to give the care and planning appropriate at this point, so that there are no negative surprises at the closing.
Buy personal name or name of a company is one of the most important elements in the implementation of the Firpta. However, it is not only the type of legal structure if not the internal Constitution that could make a difference. On the other hand Firpta is only one of the factors to take into consideration, so it is extremely important to know the advantages and disadvantages of the different structures of purchase (LLC, S-Corp, Trust, Inc, etc)

How does the buyers?
Buyer must ensure that retention occurs when the seller is "non-resident foreign individual or foreign company not considered national corporation" otherwise you could be responsible for paying that check.

LEGAL Note: The FIRPTA provisions are complicated and require the expertise of a lawyer of goods and roots, or certified public accountant that can fill the appropriate applications and to assess the potential implications. At any time you must take this information as advice.


Carlos Cornejo
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