IMPORTANT NOTICE to Realtors, Title Companies & Non-Resident Owners of U.S. Rental & Investment Property

The PATH Act of 2015 set into motion several tax extenders and new tax laws. One area of particular interest to those involved with non-resident sellers of US real estate is Section 324 of the act. This section deals with new FIRPTA Withholding regulations that will have a significant effect on sales by Non-Resident Aliens (NRA’s).

The primary change implemented by the act is an increase in the rate of FIRPTA withholding from 10% to 15%. As you may be aware, NRA owners of U.S. property are subject to withholding at the time of sale - this withholding is held in the event of a capital gain on the sale of the property and is required regardless of gain or loss.In addition, the IRS has issued a memo that refunds for NRA’s, which are applied for on their annual U.S. income tax returns, are taking a minimum of 6 months to issue and can take as long as 12 months if the IRS questions the validity of the refund.

One other provision added into Section 324 is that a reduced rate of withholding of 10% will apply to the sale of a house where the amount realized is $1 million or less and the purchaser of the property signs an affidavit that the house will be used exclusively for personal use. The exemption from FIRPTA withholding will remain for houses where the amount realized on the sale is $300,000 or less, providing that the purchaser signs the primary residence affidavit.Please see below for financial implications for buyers who sign this affidavit.

The provisions of Section 324 of the PATH Act of 2015 are effective for closings taking place after February 14, 2016.

HBI offersa range ofseminars on topics that include a more detailed review of the new FIRPTA regulations - contact Susan Harding for information...

Question Time???

I am buying a property from a nonresident seller and have been told that I am responsible for the FIRPTA withholding on the sale - is this correct?

Yes, per IRS regulations; the buyer should be aware that every person required to deduct and withhold tax under IRS section 1445 is made liable for that tax by section 1461. Therefore, a person that is required to deduct and withhold tax but fails to do so may be held liable for the payment of the tax and any applicable penalties and interest.

This requirement applies even where the sale price of the property is less than $300,000 and the buyer intends living in the property as their primary residence.

As mentioned above, many resident buyers sign the primary residence affidavit which states the buyer's intent to reside in the property.Buyers should note that If the seller does not subsequently file a timely tax return to report the transaction and pay any applicable tax the unpaid liability, including interest and penalties for late filing, becomes the responsibility of the buyer.

To ensure compliance with requirements imposed by the Internal Revenue Service, you are informed that any U.S. tax advice contained in this newsletter is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. tax penalties.

Tax Filing Deadlines

As we kick off the 2016 tax season, please remember the following important dates:

US Citizens & Residents:-

Tax Return - Form 1040 due by April 15th

FBAR report of non-US financial accounts due by April 15th

Non-Resident Owners of US Rental Property:-

Tax Return - Form 1040NR due by June 15th. Please visit our website where you will find our HBI Video Guides to assist you in completing our annual questionnaire.

A note to our clients; if you have not already received our annual questionnaire or organizer please contact our office - we will forward another copy for your attention.

Need help?

Contact our client services team for assistance, please

This information is provided by Harding Bell International Inc. For questions relating to domestic and international tax compliance and non-resident ownership of US rental and investment property including US income tax, ITINs, local & state taxes & licensing, capital gains tax or FIRPTA withholding, please contact us...

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