What Realtors Need to Know About the FIRPTA Withholding Certificate

What Realtors Need to Know About the FIRPTA Withholding Certificate

Among the most complex requirements of a FIRPTA transaction—short for the Foreign Investment in Real Property Tax Act—is Form 8288-B, also known as the Application for the FIRPTA Withholding Certificate. Under FIRPTA, foreign nationals who sell or transfer their U.S. property must have up to 15% of the gross sales price withheld and submitted to the IRS. There are certain exceptions to the withholding rules, including the issuance of a FIRPTA Withholding Certificate. The 8288-B FIRPTA Withholding Application must be properly completed and filed in order for the IRS to consider it—otherwise the seller may experience an undue delay in getting any excess funds back. Learn about the crucial timing requirements of the 8288-B application and how our team can help your FIRPTA transaction run smoothly.

Understanding the FIRPTA Withholding Certificate

Generally, the buyer in a FIRPTA transaction is required to withhold up to 15% of the gross purchase price and then submit those funds to the IRS. Typically, this is done by the closing agent responsible for disbursing the closing funds (on behalf of the buyer). Usually, the withheld funds are sent to the IRS within 20 days of the closing, and any portion in excess of what is owed is returned only with the filing of a U.S. tax return the following year.

However, if an application for a FIRPTA Withholding Certificate is submitted no later than the date of the closing, the funds will typically be held in escrow until the certificate is either approved or rejected by the IRS. If everything is in order, the IRS will instruct whoever is serving as the withholding agent to release the full withholding amount (or whatever the approved amount is) directly back to the seller.

Thus, instead of having to wait until the next year’s tax return, the foreign national seller can get his or her funds back in approximately three or four months—provided the certificate is correctly and timely filed.

Timing is Key for a Smooth Withholding Process

While you will want to submit the Application for Withholding Certificate early enough to get your funds as soon as possible, you cannot do so until a valid real estate contract has been executed. It is after this point that the 8288-B application must be submitted to the IRS on or before the closing date specified in the contract. If it has not been sent by the time the transaction closes, then the filing will be considered untimely and the withholding agent must transfer the applicable funds to the IRS within the usual 20-day period after closing. In this situation, an early refund filing may still be possible.

Hire Real Estate Experts Who Specialize in FIRPTA Transactions

Do not let you FIRPTA transaction get bogged down with delicate paperwork or time-sensitive application. Save time, money, and hassle by hiring a team with experience handling FIRPTA transactions and all the processes and requirements therein, including applying for a FIRPTA Withholding Certificate. Not only can we help ensure your proceeds are returned as soon as possible, but as a full-service title firm we can also serve as the closing and escrow agent, keeping all parties in the loop while making sure that the IRS regulations are followed with the utmost efficiency and timeliness.

If you are involved in a FIRPTA transaction, please contact us at (305) 901-5628 or [email protected].