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FIRPTA Service Florida

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Most people don’t know what FIRPTA is. FIRPTA stands for Foreign Investment in Real Property Tax Act. FIRPTA is not a tax, but a withholding. It is held back so that potential taxes can be paid. The Internal Revenue Service works on ensuring that FIRPTA is paid by withholding the amount, and once the sellers pay the amount that should be paid in taxes; they can file for tax return and get their money back. So basically, the IRS holds the money hostage till the returns are filed to show the accurate tax that was owed and the amount that can be claimed back.

If you need help completing your FIRPTA certificate, please call us at 407-344-1012, or email us at info@freedomtaxfl.com

History of FIRPTA Service Florida

Before the year 1981, non citizens of the United States were usually exempt from the tax on sale of real estate in the country. FIRPTA Service Florida was introduced by the Congress so that foreign individuals pay the right taxes on dispositions of interests in the United States real estate. This law was very specific in providing that these provisions should take priority over all existing tax treaties.

The tax act regarding foreign investment and FIRPTA Service Florida of 1980 says that a person or people who are buying real property interests from the United States should withhold at least 10 percent of the gross amount that is approached in the particular transaction. In February 2016, this rate was increased to 15 percent.

Important Things about the FIRPTA Service Florida Rule

The withholding of FIRPTA Service Florida only applies to those transactions where a foreign seller is involved. A foreign seller is defined as the person who holds residence outside of the United States.

This is not actual tax, regardless of what the copy on many FIRPTA Service Florida documents may say. FIRPTA is really just an effective measure taken by the Internal Revenue Service so that they may be successful in collecting all applicable tax from a foreign seller, that have resulted in a real estate transaction.

The change of increasing the rate of the tax as noted by many establishments that offer FIRPTA Service Florida, could mean that the property values may rise, since the tax amount that is owed generally goes beyond 10 percent.

Many people are not aware of this, but it is the buyer’s responsibility to withhold the proper funds from a foreign seller when they are purchasing real estate in the United States. If a buyer does not comply with this, it is them who are held liable if the seller fails to pay the withholding, even if you believe their promise to pay the tax should be taken in good faith by you. Most buyers in Florida are not aware of this and that is why it is important that they hire professional help like someone from FIRPTA Service Florida. It is the agent who persists that the withholding be paid along with the closing costs, so you don’t even have to bother.

FIRPTA protects buyers. Even though the purpose of the law is that the IRS does not collect applicable income tax on transactions, the secondary benefit of protecting the buyer by covering projected amount is held liable.

Since the rules of taxes and withholding can at times prove to be complex, it is advised that people take advice from a reputable FIRPTA Service Florida, they may even get you in touch with a legal advisor or their resident expert on the matter. It is better to spend the money upfront and then be able to claim what is owed to you by filing tax returns instead of dealing with consequences of not knowing how it works. Therefore get in touch with a good FIRPTA Service Florida today.

Does A FIRPTA Service Florida Help You Seal the Deal?

Like a lot of countries, the United States government makes it money by taxing on profits from businesses and transactions of real estate investments that are conducted in the country. This is deemed as a sort of capital gains tax and applied to citizens as well as non citizens who are selling an investment property, in the same way. A good FIRPTA Service Florida will tell you that the sale of primary residence is a different matter, and is therefore handled very different. This is important to note to save repercussions regarding money just as much.

The citizens of the United States have this tax levied as part of the regular income tax. However for global buyers it’s a different story, FIRPTA is a system that defines the margins for handling payment of all taxes when it comes to people living outside the country selling real estate interests that are inside the country.

How Does the Procedure Work Exactly

Your FIRPTA Service Florida will let you know about the minor details, but here is an overview. The individual selling the property will have a portion of the gross sales price withheld during closing. After around 20 days of the closing, this amount is remitted to the Internal Revenue Service.

The 15% withholding amount is deemed a sort of deposit, this amount is only realized when the actual tax is filed, in the sellers case, a tax return. When the realized value is compared with the withheld one, is the tax is less than the withholding, the seller is refunded what remains, but if the tax is more than the withheld amount, it is the seller’s responsibility to settle the balance by remitting the amount to the Internal Revenue Service in the United States. Usually your FIRPTA Service Florida handles this and notifies you.

Exceptions

There are instances when no withholding is needed. If the sale price is lower than $300, 000, and if the case is that the buyer of the property intends to use this house as personal residence for himself or his family for more than 50% of the time during a time period of 24 months once the deal has closed, then there is no need for withholding.

In order for this exception to work, the buyer needs to be an individual rather than the house being bought in the name of some corporation, parternship, trust or an estate. Vacant land nor was nor is eligible for exemption, even if the buyer says they intend to build a house on this land that they would live in.

Let’s take an example here; if a United States resident buys property for $285,000 and then the buyer intends to use the property as personal residence for around five months in a year, in addition to the buyer intending to rent the property for 3 months as well each year. This buyer also plans to leave the property empty during the rest of the year. Now since the buyer wants to continue this pattern for more than a year, the seller easily qualifies for the exemption.

It is important to see that in the example, the buyer should be willing to hand in a signed affidavit on their intentions; otherwise they may be penalized for perjury. Now the seller is still required to file an income tax return so that the sale is reported and documented. There may be other applicable income taxes that the seller has to pay off.

Remember that sale that goes beyond $300, 000 does not qualify for an exemption no matter what the circumstances of the buyer may be, or whether the seller makes a profit or a loss.

The Increase in Rate for FIRPTA

If you are still worried about the new increase in the rate of FIRPTA from 10 percent to 15 percent, don’t be. If the sale price of the real estate transaction does not go beyond $1,000,000, along with the case that the buyer would like to use that house as his or her own, and have their family move in then the buyer can definitely apply for the reduction in the amount that is withheld at closing time from 15 percent to 10 percent of the sale price (gross).

In order to clarify how important this is, let’s take another example. If an individual buys a place for $700, 000 and is later going to sell it for $600,000 and clearly incurring a loss on the sale of the property, they do not have to pay income tax on the sale. However the 15% withholding is always applicable while the $90, 000 is withheld during the closing of the transaction.

Remember that in the case when the seller hands in a document to the Internal Revenue Service saying that Sale may result in a loss, with an application that is made after than the date of the closing, they too do not need to pay up in withholding.

If you consult a FIRPTA Service Florida they will tell you that it takes the Internal Revenue Service around 3 months to issue the certificate for withholding. The closing for this may take place before the certificate is even issued. This being said, instead of remitting the amount that is withheld to the internal Revenue Service, the closing agent along with a representative of FIRPTA Service Florida is able to hold money in escrow till the time that the is certificate of withholding has been issued. When this certificate is received, the agent then remits the amount withheld, if there is any applicable and then returns the balance to the seller.

If you need help completing your FIRPTA certificate, please call us at 407-344-1012, or email us at info@freedomtaxfl.com

Things that Should Be Considered with Your FIRPTA Service Florida

These include the withholding certificate and how actual tax compares this withholding certificate amount in the time of the year when the transaction takes place. Individual income tax which is to be reported is based on the yearly calendar.

There is less cause to file any withholding certificate if this sale occurs in the month of December and the tax return has to be filed shortly. In such a situation, the money is always refunded only a few weeks after the closing of the transaction.

That being said, if the sale of the real estate takes place in the next year a month away from December, it can take 14 months and even more for the sale to be refunded. Therefore, if this does happen, your representative from FIRPTA Service Florida will always tell you to immediately apply for the withholding certificate.

When one is considering all terms of short sale, where amount is due on existing mortgage and will not be met in the proceeds from the sale, the 15% rule still counts on the property. In such cases, it is advised that you apply for withholding certificate or any withholding will cut down on the amount that is paid to the lender at closing time. Without this, it is unlikely that the person or institute you are borrowing money from will approve of this sale.

When you are applying for a withholding certificate all the parties that are involved in the transaction need to have a TIN, which is a social security number, this is very important when it comes to foreign investor. Otherwise the only other chance they have is that they rent out other property to obtain a TIN.

The Application Process of Avoiding FIRPTA Withholding

With the increase in the FIRPTA withholding rate, this has become expensive for them. The best way around to avoiding the withholding is through application of the withholding certificate. However, like the FIRPTA Service Florida says, you cannot entirely eliminate the amount, it can be only reduced to a specific amount, which simply lowers the burden of the seller. We already established the importance of the withholding certificate of FIRPTA.

Getting the Certificate before Sale of Real Estate

It helps that as a seller you already have the withholding certificate in hand. Both the buyer and the seller can apply for the certificate by the Internal Revenue Service office. Remember if you finalize a sale and then apply for the certificate, you cannot avoid FIRPTA, as your certificate is still pending and not yet approved.

The Withholding Certificate is issued only to minimize the rate that goes to the IRS. There are a couple of reasons that the IRS finds it valid to issue the certificate to individuals, but the main one revolved around exemption being realized by the transferor for the tax.

What Forms You Need

The Treasury Department regulates and provides sample certifications. According to FIRPTA Service Florida you need to fill out forms 8288, 8288-A, and 8288-B from the IRS. The filled out forms must be then provided to the buyer with a stamped and sealed copy. The sellers are required to attach forms with the tax returns; also any tax that is returned shall be credited against any tax that is due. On top of this, sellers can also make use of the 8288-B to determine the little amount of withholding that is required after the reduction. The form 8288 itself comes with more guidelines on how to avoid FIRPTA.

The Application Process

Your application for withholding certificate will not be complete without any of these steps. Make sure that you what forms apply to your situation.

Can You Avoid It

According to the FIRPTA Service Florida the first step in avoiding the withholding tax is to whether it really applies to your situation or can be exempted.

ITIN

The second step is to figure out your tax payer ID number, which is provided by the Internal Revenue Service. You can find this out by filling out the W-7 form. Depending on your status you will be either given a Social Security Number or your ITIN, but seeing that you are a foreigner, the latter is more likely what you will receive.

Fill Out Forms

The third step is filling out the 8288 forms. The application before being stamped and sealed requires you to state information including your name, address, ITIN, state of transfer, location, contract price, and type of interest.

Exchange Agreement

Before you close the property sale, you must enter the exchange agreement, specifically the 1031 agreement. It is important that you get into this agreement with one qualified intermediary like the 1031 experts. You want someone credible and who can also handle dealings with complex exchanges. This qualified intermediary should take the charge for proper compliance by filing requirements of the withholding as either the agent or a transferee.

Finalizing the Qualified Intermediary

This is an important step. You need to make sure that the following are complete.

  • The replacement property value is exactly equal to or higher than the property that you sold
  • Also make sure that the net proceeds from your sale are applied to the sale are targeted to the replacement property purchase.

Report It

The last step is to report the transaction to the IRS in your tax return claim for the year you made the sale.

If you need help completing your FIRPTA certificate, please call us at 407-344-1012, or email us at info@freedomtaxfl.com

Robert AcevedoFIRPTA Service Florida

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