The Foreign Investment in Real Property Tax Act (FIRPTA) is a tax law that imposes U.S. income tax on foreign persons selling U.S. real estate.
Under FIRPTA, if you buy U.S. real estate from a foreign person, you may be required to withhold 15% of the amount realized from the sale, the purchase price. If the law applies to your purchase, then within 20 days of the sale, you are required to file Form 8288 with the IRS alongside the 15% withholding from the purchase price. On the other hand, if your disposition is prior February 17, 2016, a 10% withholding applies. However, there are certain exceptions, for example if you are buying a residence for $300,000 or less or the property is not a U.S. real property interest.
What is a FIRPTA Withholding Certificate?
A FIRPTA Withholding Certificate is an application that you file with the IRS, Form 8288-B, for a reduced withholding based on the capital gain of a sale instead of the selling price. If 15% of the selling price is more than the tax you will owe on this sale, then a withholding certificate may be ideal for you. This process can be completed in about 3 months but may take longer depending on the case.
What are ITINs?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number (SSN) from the Social Security Administration (SSA). They are issued regardless of immigration status. However, an ITIN does not: (1) authorize work in the U.S.; (2) provide eligibility for Social Security benefits; (3) qualify a dependent for Earned Income Tax Credit Purposes.
How do I Know if I Need an ITIN?
You must apply for an ITIN if (1) you do not have an SSN and are not eligible to obtain one, (2) you have a requirement to furnish a federal tax identification number or file a federal tax return, and (3) you are in one of the following categories:
(a) Nonresident alien who is required to file a U.S. tax return;
(b) U.S. resident alien who is (based on days present in the United States) filing a U.S. tax return;(c) Dependent or spouse of a U.S. citizen/resident alien;
(d) Dependent or spouse of a nonresident alien visa holder;
(e) Nonresident alien claiming a tax treaty benefit; or
(f) Nonresident alien student, professor or researcher filing a U.S. tax return or claiming an exception.
What Are Single-Member and Multi-Member LLCs, and Which is Better for a Foreign Owner?
Single-member LLCs are those that are owned by a single individual; meanwhile, a multi-member LLC is owned by more than one person.
Which is better depends on how you would like to be taxed, as well as how many members own the LLC. Multi-member LLCs are taxed as a partnership or a corporation and depending on your state, you may also be required to file a corporate income tax return in addition to self-employment taxes. Meanwhile, a foreign owned single-member LLC is taxed as a disregarded entity by default, you may elect to be taxed as a corporation. You will have to pay taxes notwithstanding if it’s owned by a foreign person or a foreign company.
