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FIRPTA Withholding Certificate

FIRPTA Withholding Certificate


According to IRS.gov, the withholding amount on the sale of US property can be adjusted if the IRS issues a withholding certificate. A withholding certificate is an application for a reduced withholding based on the gain of a sale instead of the selling price.

If 15% of the selling price is more than the tax you will owe on this sale, then a withholding certificate may be ideal for you.

Important features to know about withholding certificate applications:

  • If the withholding certificate can’t be applied for and issued prior to closing, then typically the buyer gets to decide if the funds need to be remitted within 20 days of the closing or if they can remain in escrow pending the approval or rejection of the application.
  • The IRS will generally act on these requests within 90 days after receipt of a complete application
  • All parties must have or at least apply for a US tax ID for a withholding certificate
  • The applicant must be able to prove their basis in the property
  • The transferee, the transferee’s agent, or the transferor may request a withholding certificate.
  • A transferor that applies for a withholding certificate must notify the transferee in writing that the certificate has been applied for on the day of or the day prior to the transfer.

Let us help you start your application today!

Case Study: FIRPTA Withholding Certificate


Ron is selling his vacation home in Florida for $400,000.

He paid $280,000 for it back in 2015. Last year, he added a pool and made other capital improvements in the amount of $45,000. He will have approximately $25,000 in selling expenses including real estate commission. Assuming all the parties are on board, Ron has two options:

#1 – Let the buyer remit 15% of the $400,000 ($60,000) immediately after closing and then file a tax return the following year to recover any overpaid taxes, or

#2 – Apply for a withholding certificate. Based on the numbers above, the withholding can be reduced down to a percentage of the gain. In this case, the $60,000 can be reduced down to $10,000.

If Ron goes with option #2, he can get a partial refund of $50,000 in approximately 90 days after the closing. Ron still needs to file a tax return next year at which point he may be eligible for an additional refund of the $10,000 that was sent to the IRS.


Firpta Solutions specializes in your ITIN Application, Withholding Certificate Application and Tax Returns to Claim Your Refund!

Firpta Withholding Certificate

Start your Firpta Withholding Application

Complete our online questionnaire to begin the withholding application process. Give us some basic information about your sale:

Conditions

A withholding certificate may be issued under the following conditions:

  • A determination by the IRS that reduced withholding is appropriate because either:
       -The amount that must be withheld would be more than the transferor’s maximum tax liability, or
       -Withholding of the reduced amount would not jeopardize collection of the tax,
  • The exemption from U.S. tax of all gain realized by the transferor, or
  • An agreement for the payment of tax providing security for the tax liability, entered into by the transferee or transferor.

Categories

Withholding certificates are issued under the following categories:

  • Applications based on a claim that the transfer is entitled to nonrecognition treatment or is exempt from tax,
  • Applications based solely on a calculation of the transferor’s maximum tax liability,
  • Applications under special installment sale rules,
  • Applications based on an agreement for the payment of tax with conforming security,
  • Applications for blanket withholding certificates, and
  • Applications on any other basis.

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