Page 16 - CTT-CA Real Estate Foreign Buyer & Seller Guide_English

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Taxes & FIRPTA
If the total of (a) + (b) + (c) is 183 days or more, the alien may be a U.S. tax resident unless the alien files certain required information with the IRS to claim the benefit of any relevant exception. If the foreign person is neither a U.S. citizen nor falls within description (1) or (2), he or she is a non-resident alien and is subject to FIRPTA withholding unless an exception applies.
Exceptions
• Home Use/$300K Exception - One of the most common exceptions to FIRP TA withholding is that the transferee is not required to withhold tax in a situation in which the transferee purchases real estate for use as his/her home and the purchase price is not more than $300,000. In this case, the transferee or a member of his family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two12-month periods following the date of transfer.
• Withholding Certificate - Another exception from FIRPTA withholding oc- curs when the IRS issues a withholding certificate. The transferee, the trans- feree’s agent, or the transferor may request a withholding certificate and the IRS will generally act on these requests within 90 days after receipt of a com- plete application (Form 8288-B), including the Taxpayer Identification Num- bers (TINs) of all parties to the transaction. Form 8288-B requires a descrip- tion of the real property interest being sold, the sales price, a calculation of the maximum tax owed, and evidence that the seller has no unsatisfied FIRP TA withholding obligations with respect to the purchase of the real property interest.
A transferor that applies for a withholding certificate must notify the transferee in writing that the certificate has been applied for on the day of or the day prior to the transfer. If the withholding certificate is obtained, the non-resident alien must file a U.S. tax return for the year of sale and pay the appropriate amount
of tax due at that time. Please note that if the principal purpose of a transferee’s applying for a withholding certificate is to delay remitting the withheld tax to the IRS, the transferee will be subject to interest and penalties.
• The disposition of a U.S. real property interest by a foreign person is subject to income tax withholding
• Requires 10% of sales price be withheld, unless an exception applies
• Buyer’s responsibility to report and withhold, not the escrow officer
• Seller can request a waiver or reduced withholding on Form 8288 B
• Payment and Forms 8288 and 8288 A are due within 20 days of closing
• IRS penalties are steep if forms and/or payment are received late.