Articles Posted in FIRPTA Withholding Taxes

By. Michael W. Brooks, Esq.

The US government shutdown finally ended on January 28th– five weeks after it started. The full force of the IRS is back at work. What does this mean for the (in many cases) large refunds due to the non-US persons who sold US real estate in 2018 (and before), who were subject to a 15% IRS withholding tax (15% of the gross sales price must be sent into the IRS at the close of the sale…that’s the US tax law for non-US persons selling US real estate (known as “FIRPTA”))? In a normal period, a foreign investor who sold US real estate in one calendar year (where the 15% was sent into the IRS at the close of the transaction), could probably count on receiving their withholding tax refund around the summer or fall of the following calendar year (provided they were working with a tax professional who knew foreign real estate seller tax withholding system well- such as DIRECTS, Inc.). But in (late 2018 and) early 2019, the US experienced a five-week government shutdown, where a closed IRS still received thousands of forms, letters and overall correspondence from individuals from the US and not from the US. That’s a lot of piled and backed up correspondence IRS officials just back at work are going to have to sift through (are they even permitted to process tax refunds without first going thought the huge pile up in unopened mail?). In addition, each January apparently the IRS engages in a considerable amount of training of new employees (and even older ones), as each tax year brings with it changes that differ from prior years, and all IRS employees must prepare for the new changes. So even though the shutdown is already in the rear-view mirror, many tax experts are predicting significant delays to the IRS refund schedule caused by the mess the 2019 shutdown caused to the IRS in January 2019. While all this is going on at the IRS, we still have so many 2018 (and earlier) non-US sellers of US real who ae expecting big refunds in 2019. Will this IRS delay affect them? Let’s explore below.

The Shutdown’s Effect on The Withholding Tax Refunds Due to 2018 Foreign Sellers of US Real Estate


作者:Michael W. Brooks (税务律师/DIRECTS 董事长)

Angela Li (DIRECTS 国际税务部经理)

By Michael W. Brooks, Esq.

President DIRECTS

At DIRECTS (Domestic and International Real Estate Closing Tax Services, Inc.), all day, every day, we work on tax matters relating to FIRPTA (the Foreign Investment in Real Property Tax Act). We work for clients from throughout the world who invest in real estate throughout the United States, but most of our clients own (or owned) real estate in California, and some of our clients are owed tax refunds from the IRS from real estate sales years which took place several years ago.

作者:Michael W. Brooks 律师 和 Angela Li

同美国公民一样,非美国公民和企业也同样适用于税法1031相同或类似资产交换(LIKE-KIND EXCHANGE)的条例。投资美国个人和商业房地产的外国投资者被允许延迟缴纳已经出售房产的增值部分的税,只需要投资者在出售房产后45天内选定一个新的“替代”房产并在出售房产后的180天内完成新房产的购买程序。例如:一位中国公民在Irvine(尔湾)购买了价值100万美金的房屋作为投资屋。3年后,尔湾房地产市场增值,有人出价150万美金要购买这位中国公民的房子。如果中国投资者直接出售房屋并没有做1031相同或类似资产交换(LIKE-KIND EXCHANGE),投资者需要缴纳国税局大约6万美金的税(50万美金盈利减去大约10万美金房屋中介交易费等,剩下40万美金乘以15%的资本增值税率等于6万美金)。然而,如果我们的中国投资者在出售尔湾房产(“放弃房产”)后180天内在Newport Beach(新港海滩)购买另外一栋价值150万美金的房子(“替代房产”),中国投资者可以通过进行税法1031相同或类似资产交换(LIKE-KIND EXCHANGE)立即避免向国税局缴纳6万美金的税。

但是外国投资者售房时15%(按照房屋售价计算)的外国人预扣税怎么办?产权过户公证公司必须上缴15%的预扣税因为中国投资者是外国公民?或者可以因为中国投资者准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)而自动免除外国人投资美国房地产税收法(FIRPTA)的15%预扣税的规定?答案是产权过户公证公司仍然必须上缴15%的预扣税,即使中国投资者准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)。一般来讲产权过户公证公司必须在房屋结束交易后20天内上缴15%的预扣税到国税局。在我们以上的例子中,出售尔湾房产时,产权过户公证公司必须扣押150万美金售价的15%也就是22万5千美金,正常程序是把这22万5千美金在房屋结束交易后20天内上缴到国税局。同时,我们准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)的中国投资者必须在尔湾房子结束交易后的180天内完成价值150万美金新港海滩房屋的购买,投资者当然需要22万5千美金来完成购买。可是22万5千美金已经被缴纳到了国税局,并需要等到明年才能申请退回而因此来不及用于新港海滩房屋购买。所以中国投资者必须另外准备一笔22万5千美金用于购买新港海滩房屋,如果他有这笔多余现金的话。他也可以申请贷款。或者,也是最好的解决方案就是进行国税局8288-B预扣税快速退还申请,也是预扣税免进国税局的申请。

By Michael W. Brooks, Esq.

As discussed in Part 1, we know Foreign Investors are permitted to enter IRC Section 1031 (like-kind exchange) transactions provided certain conditions are met.  The Foreign Investor can avoid (really delay) paying tax on the sale of the first property (the relinquished property), provided the Foreign Investor identifies a qualifying replacement property within 45 days of the sale and completes the purchase of the replacement property within 180 days of the sale.  But what about the 15% (of the gross sales price) non-US seller withholding tax?  Must the escrow company withhold 15% of the sales price because the seller is foreign (even though the foreign party is entering into a 1031 like-kind exchange)?  The answer is yes- 15% of the gross sales price must still generally be withheld at the time of closing, and not distributed to the Foreign Investor or to the 1031 Accommodator.  This is where 1031 transactions and the rules of FIRPTA (the Foreign Investment in Real Property Tax Act) intersect.  The Foreign Investor entering into a like-kind exchange transaction has a big problem with respect to this 15% withholding tax requirement under FIRPTA.  For IRC Section 1031 to work, the Foreign Investor must complete the purchase of the replacement property within six months, so he or she will need the 15% held by escrow back quickly, or he or she will blow the like-kind exchange and not be able to avoid the recognition of taxes on the sale relinquished property.

Consider the example below, where a Canadian couple needs their 15% back quickly, or they will owe tax on the sale of their first property.

Congress just enacted a significant change to the required withholding tax on sales of US real estate by non-US persons, effective on real estate sales closing on or after February 17, 2016. On December 18, 2015, Congress enacted the “Protecting Americans From Tax Hikes Act of 2015 (the “New Tax Law”).

Here’s all an escrow officer really needs to know about the New Tax Law…

What Was the Withholding Tax Law on Real Estate Sales By Non-US Persons (prior to the February

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