👋Exemptions to or no FIRPTA Withholding
There are specific situations where FIRPTA withholding is reduced or not required, depending on the nature of the transaction, the parties involved, and applicable IRS rules.
🏡 Residential Use Exceptions
FIRPTA withholding may be reduced or eliminated when the buyer intends to use the property as a residence:
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$300,000 or less
👉 No FIRPTA withholding required, if the buyer certifies residential use (50% or more of the time for each of the first two years) -
$300,001 to $1,000,000
👉 Withholding reduced to 10% (instead of 15%) under the same residential use certification
🧾 Seller Is Not a Foreign Person
FIRPTA does not apply when the seller is not considered a foreign person.
This may be established through:
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Certificate of Non-Foreign Status
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Green Card Test (lawful permanent resident status)
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Substantial Presence Test, based on IRS day-count rules
👉 These determinations must be properly documented.
🌍 Substantial Presence Test (Overview)
A foreign individual may be treated as a U.S. person if they meet IRS presence thresholds:
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At least 31 days in the year of sale, and
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183 days over a 3-year period, calculated as:
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All days in the current year
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1/3 of days in the first preceding year
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1/6 of days in the second preceding year
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Certain days do not count, including:
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Diplomatic or government service
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Student or teacher visas (F, J, M, Q)
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Professional athletes in charitable events
🏢 Corporate & Entity Exceptions
FIRPTA withholding may not apply in certain entity-related situations, including:
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The property interest is not a U.S. real property interest
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The corporation is not a U.S. Real Property Holding Corporation (USRPHC)
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Stock is regularly traded on an established securities market
👉 Proper certification is required and must typically be dated within 30 days of transfer.
📄 IRS Certifications & Determinations
FIRPTA withholding may be reduced or eliminated when:
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A withholding certificate is issued by the IRS (Form 8288-B)
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A non-recognition provision applies under the Internal Revenue Code or a tax treaty
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The seller provides a qualifying statement from the U.S. Treasury
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The transaction results in no gain or no proceeds subject to withholding
💼 Other Special Cases
Additional exemptions or special treatments may apply in situations such as:
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Certain interest income exemptions (e.g., bank deposit interest, portfolio interest)
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Foreign persons trading stocks, securities, or commodities through U.S. brokers
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Options to purchase that are granted or lapse
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Dispositions involving publicly traded partnerships or trusts
⚠️ Important Considerations
FIRPTA exemptions are highly fact-specific and must be:
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Properly documented
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Timely executed
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Carefully evaluated
👉 Improper use of an exemption can result in failure to withhold, leading to penalties and liability.
👉 Confirm FIRPTA Exemptions Before Closing
If you believe your transaction may qualify for reduced or no FIRPTA withholding, we can help ensure it is handled correctly.