Foreign Real Property Transfer Act – Luxury Homes in Los Angeles
The aim of this write-up is to give an insight and also an in-depth knowledge of what Foreign Real Property Transfer Act entails. In general, a section of the tax code provides that a transferee i.e. the buyer of a United States Real Property interest must certainly withhold a particular amount of tax if the transferor i.e. the seller is a foreigner, a non-citizen.
Who is considered as a foreigner as stated in the act? These people include non-resident aliens, Disregarded entities, foreign partnerships, trusts or estates, and some foreign corporations. A person in possession of a green card is not regarded as a foreigner and the Foreign Real Property Transfer Act is not applicable to this person.
Nevertheless, there are limits or should I call it exemptions to these withholding requirements. We will look at that as we progress in this article. First of all we have to know what the withholding requirements are when one is to sell or buy a property (ies) to or from a foreigner. One has to be very familiar with the rules.
Anybody who buys a U.S. Real Property from a non-citizen; be it a corporation or a person, he/she must withhold and also remit 10% of the sale made to the IRS (Internal Revenue Service) as tax. A particular “Form 8288” is used to document that. This is strictly the responsibility of the buyer. If the buyer of the property doesn’t withhold the tax as a result of omission or may be evasion, he/she will be held liable and will be compelled to pay the tax; and also, there will be appropriate penalties and punishment meted out. In most cases, a lien is placed on the property (ies) if it was discovered that the buyer didn’t comply with the procedures.
Now to the exemptions we talked about. There will be no withholding required from the buyer when the property is being acquired to be used a residential apartment and if the price is less than $300,000. There is also the Notification of non-recognition treatment; here the buyer will not remit any withholding tax if he/she is notified by the seller in a written document which will be signed under penalties of perjury that he (seller) will not get any gain from the sale as stated under Code Section 1031. The buyer will be the one to send a copy of the notification to the Internal Revenue Service not later than 20 (twenty) days from the closing date. Nevertheless, the buyer will not be excused from the withholding tax if the sale doesn’t qualify under IRC 1031.
The other exemption is when the seller or the buyer of the property (ies) applies for and obtains a withholding certificate from the Internal Revenue Service. The withholding certificate exempts the buyer from any responsibility as regards withholding. The only challenge here is the time taken by the IRS to issue this certificate. It sometimes takes well over 90 days. Call Bruno Pisano at (213) 281-5656 for more information about your Luxury Homes in Los Angeles and FIRPTA.