Attn: Canadians (and other non ”US Persons”) Who Own US Property: What You Need To Know About FIRPTA - Don’t Sell Without This Knowledge!!

April 6, 2023 - Participants include:

 

Julie Lepore - Total FIRPTA

John Richardson - @Expatriationlaw

 

Julie is available at Total FIRPTA .

 

If you are an owner of U.S. real estate and you are selling your real estate located in the USA you need to understand the 15% withholding tax imposed by FIRPTA!

A basic description from the IRS includes:

 

Withholding of Tax on Dispositions of United States Real Property Interests

"The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests.

A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 15% (10% for dispositions before February 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).

In most cases, the buyer (transferee) is the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent."

https://www.irs.gov/individuals/international-taxpayers/firpta-withholding

 

See also IRS Publication 515.

Podcast Outline - The Top 10 Topics:

 

1. IRC Source rules - Sales of Real Property Sourced to USA

https://www.law.cornell.edu/uscode/text/26/861

"(5) Disposition of United States real property interest
Gains, profits, and income from the disposition of a United States real property interest (as defined in section 897(c))."

2. How Real Property Is Defined Under The US Internal Revenue Code

https://www.law.cornell.edu/uscode/text/26/897#c

(1) United States real property interest
(A)In general
Except as provided in subparagraph (B) or subsection (k), the term “United States real property interest” means—
(i)an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, and

3. How A Nonresident alien is taxed by the USA - 871

https://www.law.cornell.edu/uscode/text/26/871

b)Income connected with United States business—graduated rate of tax
(1)Imposition of tax
A nonresident alien individual engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 1 or 55 on his taxable income which is effectively connected with the conduct of a trade or business within the United States.

(2)Determination of taxable income
In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States.

4. Q. How does the USA enforce the payment of the tax in 871(b)?

A. FIRPTA - IRC 1445
https://www.law.cornell.edu/uscode/text/26/1445

"(a)General rule
Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition."

5.  What FIRPTA is - IRC 1445

https://www.law.cornell.edu/uscode/text/26/1445

 

"(a)General rule

Except as otherwise provided in this section, in the case of any disposition of a United States real property interest (as defined in section 897(c)) by a foreign person, the transferee shall be required to deduct and withhold a tax equal to 15 percent of the amount realized on the disposition."

6. To whom does it apply? - Definition of "foreign person"

"(3)Foreign personThe term “foreign person” means any person other than—

(A)

a United States person, and

(B)

except as otherwise provided by the Secretary, an entity with respect to which section 897 does not apply by reason of subsection (l) thereof."

 

The definition of "United States Person" in IRC 7701(a)(30) is

 

"(30)United States personThe term “United States person” means—

A)

a citizen or resident of the United States,"

7. How practically does FIRPTA apply to Canadians (and others who are neither citizens nor residents of the United States) who own real estate in the USA generally and Florida specifically?

8. Assuming FIRPTA withholding what steps must be taken to get any applicable refund - 1040NR, etc. How do they get a tax id number, etc?

9. Canadians are also taxed on the U.S. capital gain? How do they get credit for the capital gains tax paid in the USA?

10. Are nonresident aliens subject to the 3.8% Obamacare tax?