FIRPTA
Moderator: Mark T Serbinski CA CPA
FIRPTA
Friends of mine is moving back to Canada this year and they are selling their house in the US. They have been residents of California for several years. Their real estate agent wants to withhold 10% of thier gain according to the FIRPTA rule. That the first time I hear about this rule and it looks to me that it has to do with non-resident only. I'm very curious to hear more about this because I'm actualy in the exact same situation ! Do we need to give 10% or not ???
Yes, non-residents under certain circumstances, have to have some withholding. IRS pub 519 explains all the exemptions, and process.
Remember though, that this applies only once you have become non-resident, and does not remove the principal residence exemption (as long as you sell withing 3 years of moving). In the end, whether one is resident or not at the time of sale, the sale of the home will be tax-free.
One of the exemptions, for insatnce, is if the house will be used by the new owner as their home.
And even if you cannot get some form of exemption from the wiothholding, all it may mean id that you have to submit a 1040NR to recoup the withholding at year end.
The idea is that extra precautions have to be taken for withholding taxes on almost any income received by a non-resident, since it may be very difficult to collect it after the fact.
But, speaking specifically to their case, if they ahve been in US "several years" (or even several months), THEY ARE NOT NON-RESIDENTS for tax puposes, and are thus not subject to these non-resident rules.
There broker should be sticking to real estate, and not taxes (although to be fair, he is supposed to report all sales to IRS: he just doesn't understand the subtleties of tax residency). Your friends misteke was probablt in telling their broker that they were returning to canada -- that is none of his business, and merely confuded the issue.
Even if funds are improperly withheld, they simply have to file their 1040 (like they would have done anyways) and include the withholding in the tax payments, but not report the sale of their house (which they do not have to do if it was their home for 2 or more years). The will get a big check in April 2007.
Remember though, that this applies only once you have become non-resident, and does not remove the principal residence exemption (as long as you sell withing 3 years of moving). In the end, whether one is resident or not at the time of sale, the sale of the home will be tax-free.
One of the exemptions, for insatnce, is if the house will be used by the new owner as their home.
And even if you cannot get some form of exemption from the wiothholding, all it may mean id that you have to submit a 1040NR to recoup the withholding at year end.
The idea is that extra precautions have to be taken for withholding taxes on almost any income received by a non-resident, since it may be very difficult to collect it after the fact.
But, speaking specifically to their case, if they ahve been in US "several years" (or even several months), THEY ARE NOT NON-RESIDENTS for tax puposes, and are thus not subject to these non-resident rules.
There broker should be sticking to real estate, and not taxes (although to be fair, he is supposed to report all sales to IRS: he just doesn't understand the subtleties of tax residency). Your friends misteke was probablt in telling their broker that they were returning to canada -- that is none of his business, and merely confuded the issue.
Even if funds are improperly withheld, they simply have to file their 1040 (like they would have done anyways) and include the withholding in the tax payments, but not report the sale of their house (which they do not have to do if it was their home for 2 or more years). The will get a big check in April 2007.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 