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August 14, 2017 at 4:40 pm #18343F A SanchezGuest
If you are a non-U.S. investor and want to sell property in the States, there are some important things you need to know in order to run the process smoothly and make a good profit. Here’s a short guide of the tax considerations and structuring you need to pay attention to
Individual Tax Payer Identification (ITIN) required
As a foreigner, you are not required to have individual taxpayer identification number (ITIN) to sell or exchange property in the United States. You must be aware, though, that the IRS will require specific information from you in order to lift the withholding upon the sale, resulting from the FIRPTA rules (15% on sales price). You will need to provide:
Name and address on the withholding tax return
Taxpayer identification number (ITIN)
Application for withholding certificate
Notice of nonrecognition and some related documents
It would be beneficial for you to obtain ITIN, even though you are not legally required to speed up the process of getting a tax refund if the withholding is higher than the income tax.
You can reduce the tax withholding amount
You don’t necessarily have to pay 15% of the sales price as withholding tax. The alternative is to apply for withholding certificate from the IRS. You will need to prove that the maximum tax on the gains from the sale is lower than 15% of the selling price. If successful, the withholding tax may be decreased or eliminated. The time frame is 90 days from the application receipt.
FIRPTA applies to foreign-owned businesses too
If you are selling U.S. real estate through a foreign-owned single-member LLC or another form of disregarded entity the transaction will still be a subject to 15% withholding. Even foreign-owned corporations are treated like a foreign person, so they also have to comply with the FIRPTA rules. This does not apply to U.S. corporations and LLCs, but in some cases, withholding may be required for U.S. partnerships.
The buyer is responsible for the withholding
Foreign sellers are not responsible for the withholding on the sale. This is for the buyer to do.
You may qualify for reorganization exemption
If, as a foreign seller, you are transferring a property to a U.S. business entity, there’s a chance you qualify for an exemption from the withholding. The requirements for reorganization exemption can be found in the Treasury Regulation 1.897-6T of the IRC or you could use the expertise of a CPA to clear any doubts and confusion.
If you need to know more about tax considerations, responsibilities and requirements for foreign sellers, disposing of U.S. real estate interest, book a consultation by clicking on the button below.
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Fulton Abraham Sanchez, the founder of FAS CPA & Consultants of Miami, FL, is a Certified Public Accountant specialized in Tax Planning. You can email him to [email protected].
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