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US Capital Gains Tax/FIRPTA Withholding

(FIRPTA - Foreign Investment in Real Property Tax Act)

US Federal Tax law states that any US Non Resident who sells an interest in US real property, is subject to withholding tax of 15% of the gross selling price -regardless of whether the property is sold at a profit or loss-i.e. $30,000 on a property with a sales price of $200,000! The Title Company is responsible for sending the withheld figure to the IRS within 20 days of the sale. The full amount would then be retained by the IRS until they are completely satisfied that all taxes due by the non-resident, have been paid.

The tax refund would finally be recoverable by filing the following years’ Federal Tax Return, but that process could possibly take up to 18 months, depending on when the property is sold.

However, in order to avoid this lengthy delay, and ensure that your funds are released earlier, we can apply for a reduction or exemption from FIRPTA withholding, on or preferably, before, the closing date. In this instance, the 15% withholding figure would remain with the Title Company, rather than being sent to the IRS.Thus, allowing time for the IRS to process the application, and issue a Withholding Certificate for the cleared funds-all within a period of 10-12 weeks.

IMPORTANT

Please advise us in plenty of time before closing, if you wish an application to be made for the reduced FIRPTA withholding -a late application would be rejected.

The following information is essential to your application and must be obtained prior to closing:

  1. Names, addresses and Social Security Numbers of Buyers, if US Citizens.
  2. Names addresses and ITIN’s for non-residents.
  3. Finally if the buyers are non-resident and have not yet applied for US Tax ID’s, each must submit a completed W-7, together with a notarized copy of the picture page of their passports.

In order to reduce, or eliminate, the amount of US Capital Gains Tax due, we also submit copies of filed Federal Tax Returns, showing losses to date. The cumulative losses can save the seller a substantial amount of tax at this time.

It is worth noting, that you are still required to file a final tax return in which you must report the sale of your property. We will advise you whether you are eligible for a further tax refund.

Please contact us if you want to discuss the tax implications before selling your property.

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