When a Foreign National sells property in the US


There are quiet a few "rumors" floating around all over the internet.

If a Foreign National sells property in the US he has to follow Firpta Rules (Foreign Investment in Real Property Tax Act) which basically says that a foreign national has to pay 10% of the purchase price (not the gain/profit) to the IRS. A Foreign National is someone who does not pay income taxes in the US - foreign nationals with a Greencard or some of the other available visa types who do file income taxes in the US and have a social security number may be exempt - they might not have to pay the 10% at closing since they are paying any taxes due from the sale of the property with their "normal" income tax anyway - like any US Citizen will do as well. If you are unsure if you are a "foreign national" in the eyes of the IRS, please contact your tax accountant.

There are certain things a foreign national can and should do, to get some or all of the 10% witholdings back. A foreign national can apply for an exemption certificate (best with help of a tax accountant who is familiar with Firtpa) Here a foreign national can deduct costs of sale, renovations to the property, expenses and a possible loss. If a foreign national applied for this exemption certificate prior to closing, some title companies will hold the 10% Firpta withholdings on their escrow and as soon as the certificate comes back from the IRS they will release the exempt amount back to the seller - without paying it to the IRS first. If a seller did not file for the exemption certificate prior to closing, the title company will pay the IRS and the seller (or seller's tax accountant) have to request the refund directly from the IRS.

There is one very popular exemption - however this depends on the buyer of the property. If a property sells for less than $ 300,000 and the buyer is willing to sign an affidavit, that he (or his close family) will occupy the property for at least 50% for a period of 2 years - the seller is exempt from the 10% Firpta withholdings. This by the way is true for US Citizen Buyers and for Foreign National Buyers.

For more details please contact your tax accountant :)           

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