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Understanding FIRPTA

The Foreign Investment in Real Property Tax Act (“FIRPTA”) is the U.S. tax law that requires 15% of a non-U.S. seller’s gross sales proceed to be sent directly by the closing agent to the U.S. Internal Revenue Service (“IRS”). This law was enacted to insure that the appropriate tax will be paid by non-U.S. sellers on their sale of U.S. real estate by requiring that a significant portion of the gross sales proceeds (generally well in excess of the tax, if any, that will ultimately be due) be sent directly to the IRS and requiring the non-U.S. seller to subsequently seek a refund of the amount paid.

There is a process available to a non-U.S. seller to reduce or totally eliminate the amount to be remitted to the IRS at closing by filing specific forms with the IRS prior to the sale that contain a calculation of the actual amount of the gain, if any, that the non-U.S. seller will have on the sale and the applicable tax on that gain. If the forms show that there will be no gain on the sale, the IRS may issue a withholding certificate that allows the closing agent to disburse the withheld amount to the seller. DVC Sales recommends that these forms be prepared and filed by a qualified FIRPTA compliance company.

In order to file the documents to avoid the 15% withholding, a non-U.S. seller must have a U.S. Social Security Number or U.S. Individual Taxpayer Identification Number (“ITIN”). If the seller has neither of these, an application to obtain an ITIN must also be filed along with the other FIRPTA paperwork. Because the entire FIRPTA process can take some time to complete (especially if the seller does not have a U.S. Social Security Number or U.S. Individual Taxpayer Identification Number) and must be completed before the closing, it is preferable to initiate the contact with the FIRPTA compliance company as early as possible so that the closing process may proceed smoothly.

DVC Sales recommends U.S.FIRPTA, LLC for assistance with the FIRPTA filings. The contact information for U.S. FIRPTA, LLC is listed below.

The seller can file forms with the IRS to receive a refund. It most cases they receive a full refund. Below is a calculator you can use as an estimate. This tool should be used only as a guide. DVC Sales does not provide any tax advice. Consult a FIRPTA expert or the Internal Revenue Service.

Our understanding how to calculate the taxable income:

Buying
Selling
Contract Price
Real Estate Commission
Closing Costs paid when buying and selling
Disney's Estoppel Fee
Certified FIRPTA agent fee
Amount sent to the IRS (15% of the selling price)
Net to Seller at Closing
The income that the seller should expect to pay taxes on
Tax payment due to IRS (assuming 20% rate)
Estimated Refund
Percent of FIRPTA withholding returned to the Seller

Wade F. Johnson, Jr.
U.S. FIRPTA, LLC
4255 Tidewater Dr.
Orlando, FL 32812-7949
Certified Acceptance Agent
Telephone (407) 859-2388
Facsimile (407) 429-3825
wade@usfirpta.com