Page 8 - Foreign Investor Guide - Hawaii
P. 8
Foreign Investment in Real Property Tax Act of 1980
and Section 1031 Exchanges
A foreign person that sells or exchanges a U.S. How and when is the withholding paid?
real property interest is subject to a required The tax must be reported and paid using IRS
withholding under the Foreign Form 8288, which must be filed with the IRS by
Investment in Real Property Tax Act of 1980 the 20th day after the date of the transfer.
(FIRPTA). A U.S. real property interest includes
sales of interests in parcels of real property. Are there any exceptions to the
withholding requirement?
The required withholding is 15% of the gross Yes, there are numerous exceptions to the
sales price unless the buyer is acquiring the withholding requirement. The most common
property as a personal residence and the sale exceptions are as follows:
price is between $300,001 and $1 million in 1. Buyer acquires the property for use as a
which case the withholding will only be 10%. home and the sales price is not more than
This amount must be remitted to the IRS within $300,000;
20 days after the date of transfer. 2. Seller provides a certification stating under
penalty of perjury that they are not a foreign
Additionally, Treasury Decision 9082 (effective person;
November 4, 2003) requires all foreign sellers 3. Seller obtains a withholding certificate from
of U.S. real property to have a Taxpayer the IRS that excuses the withholding;
Identification Number (TIN) to pay the required 4. Seller provides the buyer a notice of non-
withholding or to request a reduced tax recognition stating that no recognition
withholding. Individuals who do not qualify of gain or loss on the transfer is required
for Social Security Numbers (SSN) may – by because of a provisions in the IRC Code or
filing form W-7 – obtain Individual Taxpayer U.S. tax treaty; or
Identification Numbers (ITINs) to meet the 5. Amount the seller realizes from the
requirement to supply a TIN. disposition is zero.
What is the definition of “foreign person” How does the seller obtain a Withholding
under FIRPTA? Certificate?
FIRPTA defines a “foreign person” as a non- A transferor looking to reduce or eliminate the
resident alien individual, a foreign corporation FIRPTA withholding amount must file a Form
that has not made an election under section 8288-B, Application for Withholding
897(i) of the Internal Revenue Code to be Certificate for Disposition by Foreign Persons
treated as a domestic corporation, a foreign of U.S. Real Property Interests. Form 8288-B
partnership, a foreign trust, or a foreign estate. requires a TIN. Thus, a transfer-or who does not
The term “foreign person” does not include a qualify for an SSN may attach Form
resident alien individual. should be aware that it takes the IRS 90 days to
respond to an Application.
Who is required to withhold and remit the
withholding to the IRS?
The buyer/transferee and certain agents of
the buyer are responsible for withholding the
required amount.
