Withholding Withholding Withholding! I am always surprised at all the questions I get regarding the foreigner withholding. But then, this is California and we like to tell everyone that we do more sale transactions in a year than the other states combined. Whether this is true or an exaggeration, it sure feels like it! And with us so close to Canada, Mexico and the Far East, there are bound to be many concerns from foreigners. (Yes, Canadians are foreigners.) Here is one foreigner withholding question for this month. There was another one I wanted to share but I’m afraid it would be TMI – too much info. So I will share it next month. It shows that education on this topic is still lacking.
YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
Question:
Does a Transferor (Seller) or Transferee (Buyer) need to file a Withholding Certificate if the amount the Transferor (Seller) realizes on the transfer of a U.S. real property interest is zero? In other words, in order to obtain the benefit of the exception from FIRPTA withholding and not being liable for capital gains tax, must a certificate be filed?
Answer:
There are many parts to this question that we need to address:
“Withholding Certificate” – there isn’t a Withholding Certificate for the Foreign Investment in Real Property Act (FIRPTA) law. What is required is a FIRPTA Affidavit to show whether the Seller is a foreigner. If he is a foreigner then there is a Withholding Form known as the 8288 that is signed by the Buyer and sent to the IRS by the Settlement Agent along with the withholding amount.
“Amount realized” – The FIRPTA Affidavit is required by the settlement agent from the foreign transferor for every transaction, no matter “the amount he realizes”. The withholding is based on the sales price, not the amount realized, and not on the net proceeds. So if the Buyer /transferee signs a declaration that this will be their principal residence, then the foreign Seller’s withholding on any sales price below $1 million will be 10% and 15% for sales price over $1 million.
“Exception from FIRPTA” – There is no “exception” from the FIRPTA Affidavit. The only exception is that the withholding is exempt if the Seller is not a foreigner. It is also exempt if the sales price is under $300,000 and the Buyer signs a Buyer’s declaration that he will use the property as his principal residence.
Finally, I don’t know if I answered your question but it is important that you contact a qualified CPA who understands the FIRPTA withholding for a more definitive answer to the issues of a foreigner filing income taxes in the U.S.
Educational Moment:
Based on the words that the person used in his question, it feels like he was confusing the federal FIRPTA withholding laws with the State of California Withholding Exemption law. Both need to be considered and are required in every sale transaction.
To clarify, the California Withholding requirement has a Withholding Tax Statement (Form 593) that each Seller has to complete. If the Seller cannot qualify for an automatic exemption stated on the form, then he can complete another part of the form to show that there is a negative or zero gain, and there would be no withholding. This Form 593 Withholding Statement is required for every transaction we handle and sent to the State at the closing.
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~ Video of the Month ~
We are all in customer service. I learned from this video;
I hope you will get something out of it, too.
“Takes Pleasure in People’s Happiness”
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~ Quote of the Month ~
“People who wonder whether the glass is half empty or half full are missing the point.
The glass is refillable.”
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When someone intentionally tries to commit fraud on my escrow documents. (a re-post but always a reminder that bad people are all around)
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You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
Advance Disclosure:
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
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