FIRPTA for Individual Sellers

Buying property in the US as a foreign person usually comes with a few unwanted hick-ups, but selling property is when things can really get messy. Optimistically, you did some research on FIRPTA before you even thought about listing your vacation home or investment property, but more often than not, it can catch you by surprise. Yes, the US government can legally tax you on the sale of your US property, but most countries have similar provisions in place. If you feel confused and overwhelmed, you are not alone! Please contact us and we will be glad you answer your questions and guide you in the right direction.

Why didn’t someone tell me about this sooner?

The reality is, FIRPTA is a highly complicated and unique area of tax law. Most realtors, title agents, attorneys and accountants don’t encounter foreign Sellers as frequently as you would assume. Guides and online resources usually cover one aspect at a time and it truly takes a wealth of experience to put all of that information together in a comprehensive package. The smallest detail can drastically change the timeline, percentage of withholding and overall strategy. It will be worth it to find someone who has done their homework and can truly help navigate this slippery slope.

Does FIRPTA apply to me?

While that sounds like an easy question, the answer is not always obvious. Very generally speaking, if the owner of the property files a US tax return as a US resident, reporting and paying US tax on their worldwide income, then they are likely considered a “US Person” and not subject to FIRPTA withholding tax. If you are considered a US Person, then you will likely need to sign a Non-Foreign Affidavit when you transfer the property to the Buyer. If you are a US citizen, then FIRPTA does not apply to you, regardless of where you call home. Paying US taxes, having a green card or a Social Security Number, and living in the US for more than half of the year do not provide any guarantee that you are not subject to FIRPTA. If you are unsure, then we highly recommend seeking a professional opinion.

Do I still need to file a tax return?

Even if you were able to reduce the FIRPTA withholding rate to 0% or you have successfully received approval for a Withholding Certificate, you are still required to file a US tax return. Think of the tax return as the final step of the process and it provides assurance that everything has been addressed and processed.

Does FIRPTA affect my tax return where I live?

Yes. Most countries will require that you include the property sale on your personal tax return in the country that you live. Sometimes a US Tax Treaty will alter how this works, so be sure to discuss with your tax accountant at home as well. As a general rule, if you did pay capital gains tax (calculated on your US Non-Resident tax return, not the FIRPTA Withholding Tax) on the sale, then you can use that amount to reduce the taxes that you would pay at home.

Any final words of advice?

Be sure to read our pages on Options to Reduce FIRPTA Withholding here as well as what an ITIN is here. The best advice is to simply have patience. The IRS works on its own timeline and there is really nothing that your advisor can do to hurry them along. Your advisor should still always be in your corner and willing to assist you through the entire process – until all FIRPTA and taxes have been squared away and your money is back in your pocket!

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