ITIN (Individual Tax Identification Number)
This section is for our non-US resident buyers:
If you are a US resident then you report the taxes via your social security number. If you are a foreign national you need to acquire an ITIN number (individual Tax Identification Number). Every foreign owner of a property in the US must have one.
The application and filings can be handled by an accountant and we can set things up for you as part of our service.
There is one important document in particular needed to be able to get your ITIN # either your passport or a certified copy of the picture page of your passport(s), the IRS requires this to process your ITIN application. They may also accept an original picture drivers license and your birth certificate if you would prefer to have that sent with your application.
Although the below applies to non-US resident Sellers, it is useful to bear in mind when buying….
F.I.R.P.T.A. (Foreign Investment in Real Property Tax Act)
U.S. tax law requires that any non-resident alien who sells an interest in U.S. real property is subject to withholding for tax purposes of 10% of the gross sales price.
This is required by the U.S. Foreign Investment in Real Property Tax Act and is referred to as F.I.R.P.T.A. The withheld amount is required to be forwarded to the Internal Revenue Service (IRS) by the closing agent within 20 days of the closing date. These funds are held until the IRS is satisfied that all taxes due by the non-resident are paid. The taxes due include tax on income from rentals less applicable costs and capital gains tax.
In order to apply for a refund of the withheld amount you can either:
OPTION 1 – File U.S. tax returns for each year that rental income was generated. Reporting all income and expenses and a final return reporting the sale to recover the balance of cleared funds. With this process, it can take up to eighteen months to get your refund depending on when during the tax year the property is sold.
OPTION 2 – File Form 8288-B – Application for Exemption from Withholding with supporting documents (including tax returns reporting prior year income and expenses) on or before the date of closing. By choosing this option, the 10% withholding remains with the closing agent whilst the IRS processes the withholding application and issues a Withholding Certificate for the cleared funds. With this process, it usually takes around 90 days to get your refund.
Please note: applying for and receiving a Withholding Certificate does not eliminate your requirement to file a final U.S. income tax return to report the sale transaction. In fact, when your final tax return is filed you may receive a further refund depending on the number of owners and length of time that the property was held.
The following is required to file for an early release of cleared FIRPTA withholding:
Copy of settlement statement from purchase of property
Copy of furniture package invoice or approximate value if included in the purchase price
Copies of invoices/receipts for major improvements/upgrades to your property
Copies of any prior year tax returns filed to the IRS.
If tax returns have not been filed in previous years:
Details of income received and expenses incurred during the year(s) of ownership
Your U.S. Taxpayer Identification Numbers (ITINs)
If you do not have ITINs:
Completed Forms W-7 (one per seller)
Notarized copies of the picture pages of your passports
In order to meet the IRS filing requirements, the FIRPTA submission must be made on or before the day of closing. We recommend that your accountant be contacted as soon as you list your home for sale in order that all requirements are completed in a timely manner.
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