Our firm specializes in reducing or eliminating this withholding by making a Withholding Certificate Application. Generally, the buyer in a FIRPTA transaction is required to withhold 15% of the gross purchase price and then submit those funds to the IRS. This is normally completed by the closing agent responsible for disbursing the closing funds (on behalf of the buyer). The withholding must be remitted to IRS within 20 days of the closing. The amount is claimed as a credit/refund on the yearend tax return and refunded to the seller.
However, if an application for a FIRPTA Withholding Certificate is submitted before closing, the funds can be held by the Title Company until the Withholding Certificate application is approved by the IRS. The Withholding Certificate will allow the Title Company to release the withholding (in full or in part) directly to the seller. The IRS normally issue the Withholding Certificate within 90 days. Thus, instead of having to wait until the next year’s tax return, the foreign seller can get his funds back more quickly than waiting to file a US tax return at the end of the year.
There are particular requirements if the seller purchased the property from a foreign person. Time is important to ensure the Withholding Certificate application can be prepared and filed before the sale is closed. The application requires particular supporting documents to avoid rejection. Please contact our office for further details when considering selling your property: (321) 784-8329 or admin@JanDoughtyCPA.com. The process sounds complex but we regularly work with Realtors, Title Companies and buyers to gather all the required information in an efficient and timely manner to ensure the application is complete and accepted by the IRS.