What is a Foreign Seller?

Our Clients are the Foreign Sellers of U.S. Real Estate or recipients of U.S. taxable real property income and /or capital gains.
  • Clients will NOT be US Citizens, will NOT have valid US Green Cards and will NOT have spent 6 months in the USA over the last 3 years.
  • NOT a domestic US corporation or partnership.
  • The real estate closing or shareholder distribution took place less than 3 years ago.
We also work with Agents and Vendors providing services to Clients:
  • Agents are parties who represent Clients, such as Substitutes or others under Power of Attorney.
  • Vendors represent Clients in a FIRPTA qualifying Real Estate Transaction, such as a Title Agent, Real Estate Attorney and Realtor.
 
 

Types of Cases We Handle

We handle Seller cases subject to FIRPTA and  Buyer cases verifying exception requests.

WE SERVE: Buyers, Foreign Sellers, Foreign Shareholders ("Clients"), their Agents, Substitutes and Powers of Attorney ("Agents) and those providing services  ("Vendors") to Clients and Agents, including Realtors. Title and/or Closing Companies and Attorneys in FIRPTA withholding IRS taxable transactions. FREE CONSULTATION.

Dispositions under FIRPTA that we handle include but are not limited to:

  • Gains and losses from sale or exchange of US Real Estate: Closed and Pending

  • Income from rental of real property

  • Other than real estate direct taxable FIRPTA interests

  • Dispositions of interests in non-publicly traded partnerships or trusts 

  • Forfeitures: Foreclosure, Deed-in-lieu and Short Sale

  • Capital contribution or distribution

  • Liquidation and/or redemptions

  • 1031 like kind exchanges

  • Involuntary conversions (condemed, destroyed, exchanged, etc.)

  • Gifts

  • Options to purchase that are sold, exchanged or excercised.

 

What is a Non Resident Alien (NRA)?

If you are an Non Resident Alien (NRA) (not a U.S. citizen), you are considered a nonresident alien unless you meet one of two tests.

 

You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for the calendar year (January 1-December 31). There are extenuating circumstances to these but here are the basics:

Green Card Test

You are a resident, for U.S. federal tax purposes, if you are a Lawful Permanent Resident of the United States at any time during the calendar year. This is known as the "green card" test.

You are a Lawful Permanent Resident of the United States, at any time, if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) issued you an alien registration card, Form I-551, also known as a "green card."

Substantial Presence Test

A complex formula that determines if a Foreign Person is considered a US Person for the calendar year of a purchase in order to be exempt from paying the FIRPTA withholding. It is a counting days process.

  • Days do not count if Foreign Person is in USA representing a foreign government, a teacher, student (J, Q, F, M visas) or professional athlete in a charity event.

  • Count 31 days during year of sale AND 183 days during the year of sale and the preceding 2 years, ONLY counting all days during sale year; 1/3 days during 1st preceding year; 1/6th days during 2nd preceding year.

What Types of Ownership?

Examples:​

  • Fee ownership,

  • Co-ownership,

  • Shareholder distribution,

  • Leasehold interest,

  • Tme share,

  • Life estate,

  • Remainder or reversionary interests or future interests from an estate,

  • Options; and

  • Mortgages with equity kickers.

 

How About Foreign Corporations?

We make the complexities of ITINs simple and easy for our clients and their agents.

  • We assist our clients in obtaining IRS Employer Identification Numbers (EINs) as part of our program.

    • Foreign corporations may require a multiple of complex IRS filings, including required statements, certificates of entitlement, exceptions,  protective and special returns.

 
 

Pending Real Estate Transactions

Real Estate Transactions Under contract but have not yet closed.

  Two withholding choices:

  • File for Reduced Withholding Certificate at closing.

    • 15% Seller withholding stays with closing agent for about 90 days until IRS responds.

    • IRS authorized release amounts, if any, are returned to Seller right away! Speedy.

​​

  • Or Buyer/Payor remits 15% withholding of the total sale price from Seller's proceeds to the IRS within 20 days.

    • Year end tax return must be filed for refund. May take 3-4 months to receive a refund.

 

Closed Real Estate Transactions

Already closed  Real Estate Transactions, which have closed within the last 3 years.

FIRPTA withholding has been remitted to the IRS but no tax return for a refund has been filed.​ Or, a tax return and/or ITIN has been requested and filed with the IRS but no results have been obtained and the party purporting to handle the FIRPTA filings is not responsive in a positive way. 

Types of Real Estate We've Handled

Below is a list of the types of real estate our principal Richard Kahn has handled in the 40 plus years of his professional career. Total combined property values are well over $1 Billion transacted. These properties are all located in the USA.

Residential, Commercial (Hotel, Industrial, Land, Multi-Family, Office, Retail, Special Purpose.

RESIDENTIAL

  • Primary Residences

  • Second (Vacation) Homes

  • Single Family

  • Condominium

  • Condotel (Condos with a front desk)

  • Cooperatives

  • Townhome

Hotels

  • Extended Stay​

  • Limited Service

  • Full Service

  • Resort

Land

  • Greenfield (Undeveloped)​

  • Infill (Developed but vacant)

  • Brownfield (Re-use for environmental reasons)

Office Buildings

  • Class A: Best of the Best​

  • Class B: Good quality, okay location

  • Class C: Everything else

  • CBD: Central Business District 

  • Suburban

Industrial

  • Heavy Manufacturing​

  • Light Industrial

  • Flex warehouse (Office/Industrial)

  • Bulk warehouse (Big Box)

Retail - Shopping

  • Strip Center (With/without Anchors)​

  • Community Center (Multiple Anchors)

  • Power Center (Big box Anchors, strips, out parcels)

  • Regional Mall​

  • Out parcel

Multi-Family

  • Garden Apartments​

  • Midrise Apartments 

  • High-Rise Apartments

Special Purpose​

  • Often originally investor constructed and owned.

  • Examples: (Alphabetically)  Auditorium, Bowling Alley, Car Wash, Church, Community Center, Funeral Home, Gas Station, Marina, Nursing Home, School, Self Storage, Theater, Theme Park.

 

Geographic Location of USA Properties

United States:​

  • Lower 48, Alaska, Hawaii

Caribbean & North Atlantic Region

Puerto Rico (Capital: San Juan)

United States Virgin Islands (VI)

  • Major Islands:

    • St. Thomas (Capital: Charlotte Amalie)

      • (Only US city to drive on left side of the road.) ​

    • St. John, St. Croix, Water Island

  • Lesser Islands

    • West Cay, Savana, Saba, Hassel, Great and Little St. James,.

Micronesia & North Pacific ​

Guam (Capital: Hagatna)

Northern Mariana Islands:

  • Major Islands

    • Saipan (Capital: Capital Hill)

    • Rota, Tinian and Pagan

Foreclosures, Deed-in-Lieu, Short Sales

FORECLOSURES - Disposition under FIRPTA

1. Subject to tax on any gain resulting

2. Transferee (buyer, bank, lender, etc) is responsible for withholding

3. FIRPTA rules differ from rules for other dispositions

4. If trustee on date of transfer notifies the court and IRS and there is a loss, which there usually is, the withholding could work out to ZERO.

 

Deed-in-Lieu - Disposition under FIRPTA

Debtor simply transfers over the title to the creditor.

Amount realized is the amount encumbering the USRPI plus any additional amounts paid to the debtor.

No withholding or FIRPTA tax if:

•Transferee is the only person with a security interest in the USRPI

•No cash or other property other than incidental fees is paid.

•Notice requirements (same as Foreclosure) are met.

Short sales - Disposition under FIRPTA

Sale of a property at less than the mortgage outstanding, with permission of the lender. Net proceeds not payable to Seller.

1. Subject to tax on any gain resulting under FIRPTA

2. Transferee (buyer, bank, lender, etc) is responsible for withholding

3. FIRPTA rules differ from rules for other dispositions

4. Prime candidate for reduced withholding certificate at closing because, the withholding could work out to ZERO.

5. In cases FIRPTA withhelding was sent to IRS then prime candidate for a full refund.

 
 
 

Income From Other than Real Estate

Some of our Foreign non-US clients are or have had FIRPTA withheld by the ones paying (Payers) from distributions of income they receive as investors or shareholders. 

While the name of the Payer in a Real Estate Transaction is Buyer, in a non-real estate transaction they are referred to as Payer because they are paying money to a non-resident alien, also known as a Foreign Investor.

When the Payer pays the Foreign Investor gains or income the Payer must withhold 15% from the payment under FIRPTA, (the Foreign Investment in Real Property Tax Act)  and remit the withheld funds due Foreign Investor, to the IRS within 20 days of the payment. This withholding is almost always going to be much more than the tax due because the withholding is on the gross sale proceeds and not the tax on net gains.

If the payment has to do with income effectively connected to real property (ECI) interests the deductions may be taken against it. Deductions against fixed, determinable, annual or periodic (FDAP) income are not allowed. 

ECI is generally considered to include income from activities having to do with a trade or business. FDAP generally consist of passive types of investment income such as rents, dividends, interest, royalties and such. FIRPTArefunds tax division has decades of experience in the different tax considerations of ECI and FDAP earnings 

 

Basis Adjustment for Depreciation Allowed or Allowable

The IRS stipulates (reference publication 946) that "You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Depreciation allowable is depreciation you are entitle to deduct. If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable."

This often surprises Sellers of properties. In short, by example, say we have a property that was purchased for $500,000 and sold for $550,000 with $50,000 in deductible expenses. That would seem to mean "no tax due". In reality, when depreciation recapture is calculated, there is a tax due. 

Take a residential property stipulating 27 years depreciation. Say the property was owned for 10 years. Per year that is $18,518 depreciation. Over 10 years that's $185,180. To find the taxable basis deduct the $185,180 from $500,000 for adjusted basis of $314,820. That means selling at $500,000 results in a $185,180  capital gain that is now taxable! 

VISA FAQs

Being a Resident Alien for tax purposes normally involves meeting one of the two tests we have previously identified in the FIRPTA tab under Exemptions. These are the "Green Card Test" and the "Substantial Presence Test"

 

Here we address some generalities on Visas.

  • When are holders of certain Visas considered resident aliens for tax purposes?

    • F and J Student Visa holders: After 5 years in USA.

    • J professors and researchers: After 2 years in USA

    • H-1, TN and O-1 must meet Substantial Presence Test.

      • J-1 professors and researchers in compliance with visa requirements do not count days for their first 2  years. For F-1 and J-1 Students that pushes out to first 5  years.  

    • By "years" we mean "Calendar Years".​​

 
Ph:  417-862-4710

© 2007-2019 FIRPTArefunds | Forensic Professionals Group USA, Inc. |  All rights reserved.

  • White Facebook Icon
  • White Twitter Icon
  • White LinkedIn Icon