FIRPTA affidavit

What Is a FIRPTA Affidavit?


Most people never have to deal with the IRS and the Foreign Investment in Real Property Tax Act (FIRPTA). FIRPTRA is a US law that imposes income tax on foreign persons. When you sell US real estate property to a person or entity overseas, there must be a report of the transaction.

You will owe taxes on any capital gain realized. That’s where the FIRPTA affidavit comes into play. A FIRPTA affidavit lists two sets of data. The first set is who has an interest in a piece of the US real estate property.

The second set revolves around US real estate property factors and should be subject to US income tax. The FIRPTA affidavit is often misunderstood, so it’s important to know why you may need one. Please keep reading if you’re interested in learning more about the FIRPTA affidavit.

FIRPTA Affidavit

When dealing with foreign entities, it can be challenging to understand how they apply within a US context. It almost always requires counsel and knowledge of the governing tax laws. The FIRPTA process allows taxpayers a way to understand US tax obligations better.

The FIRPTA process was also part of helping foreign entities understand tax obligations.  Both of the FIRPTA affidavit processes include paying taxes as required by the home nation’s tax laws. Paying taxes as required by the home nation’s tax laws became part of other income source transactions.

The FIRPTA Affadavid Applies To a Variety Of Situations

The FIRPTA affidavit applies to a variety of situations.

  1. The affidavit accompanies IRS Form 8288, Affidavit of US Beneficial Ownership of Foreign Partnership Interest. The accompanying Form 8288 applies when it is filed with the IRS by foreign entities on their ownership of a US partnership interest.
  2. The affidavit becomes part of Forms 8865. Form 8865 relates to selling foreign entity property to a body that doesn’t consider themselves a non-U.S. person defined by IRC 7701(a)(30).

The FIRPTA affidavit is usually one that an attorney r tax accountant prepares with the entity’s legal representative signing it.

FIRPTA Buyer Affidavit

The FIRPTA Affidavit explains the foreign entity with the real estate purchase what US tax obligations they have. The seller won’t have to pay US taxes on the property they are selling, but they do have to report it as a capital gain on tax returns. This is true 100% of the time if they are subject to US income taxes or a combination of US tax situations.

If a foreign entity doesn’t have legal representation to work with entities that need this affidavit, a tax professional or accountant can provide this service. Starting the FIRPTA process means you file a FIRPTA Form 8288 with the IRS. You should file Form 8288 as a claim or statement.

There are differences between the two.

FIRPTA Seller Affadavit

To use the FIRPTA seller affidavit process effectively, the buyer and seller of the property need to analyze various tax circumstances and understand what applies to them. For instance, there are times when you use a FIRPTA Affidavit and don’t have to pay any additional taxes for your real estate purchase. You may not have to pay any more taxes because the seller has already paid the tax liability.

Foreign individuals doing business in the United States, or US corporations with foreign subsidiaries, or foreign individuals owning 10% or more equity in US corporations are must file Form 5471. You file this form with the IRS annually.

FIRPTA Non-Foreign Affidavit

FIRPTA non-foreign affidavits depend on a few factors. It is consideration of the entity’s factors that decides if they are liable for US taxes. Or whether the entity is selling to a non-US person or non-foreign entity, the IRS assists with the definition. The IRS defines (IRC 7701 (a) (30)).

FIRPTA waivers are often used when the seller is not another foreigner, but they don’t have US tax liability. That means the property’s sale is to someone who doesn’t fall under IRC 7701(a)(30). If you sell to a no-foreign person who is a beneficiary of a US trust and receive income from that trust, they are legally the beneficiaries.

That means they are liable for the same tax laws and regulations as outside the US.

FIRPTA Occupancy Affidavit

There are US immigration documents that relate to occupancy and real estate transactions. They include if the US doesn’t have a treaty or convention with the United Kingdom regarding real estate taxation. Some provisions include the holding of US property in trust for UK residents.

Several agencies issue an interpretation letter that guides clients and licensees. This guidance concerns FIRPTA occupancy affidavits or other US immigration laws as they apply to trust arrangements. The trust arrangements will involve foreign individuals and real estate purchases.

FIRPTA Withholding Affidavit

All non-resident aliens (except foreign government-related entities) are subject to the same tax rules as United States citizens. Under most circumstances, taxes on entities is on their worldwide income regardless of where they keep it or earned. Also, foreign nationals and non-resident aliens who have business or investment activities within the United States may be subject to US taxes on such activities.

That means they are liable for any income they earn as if they were in the US. The tax liability extends to US real estate. Non-resident aliens are subject to tax on all U.S.-source income. There are often complicated circumstances with the taxation of nonresident alien individuals.

It depends upon the individual’s status, the type of income received, and the amount of time they spent in the United States during a given year. Some US real estate entities that have net active business income (NAPI) can be taxed. 

Your Next FIRPTA Affidavit Step

Whether you’re a business that wants to incorporate new entities, need payroll tax services, or know you need more information about a FIRPTA affidavit, there is a place you can go. Reach out to Freedom Tax Accounting when you need accurate information that handles your fiscal concerns promptly. If you need a FIRPTA affidavit or a foreigner who needs advice on the FIRPTA process, please contact our friendly team of consular representatives.

Freedom Tax Accounting can help you with tax concerns, a FIRPTA Affidavit, or fiscal issues today, so you never have to worry about it tomorrow.

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