FIRPTA 10% withholding

I was told by a broker that when non-US resident (citizen) aliens selling their timeshare is subject to a 10 % withholding of the sales price.

I checked Google about FIRPTA, and came out something like this:

" FIRPTA's objective is to force non-resident aliens (NRA) to file U.S. income tax returns and pay tax on U.S. source profits.
The worry was that a foreign person would sell U.S. real estate and forget to file a US Income tax Return. FIRPTA prevents this by requiring Federal withholding of 10% of the sales price, regardless of the amount of profit from the transaction. "

If there is a profit, it is reasonable to comply wirh the law of withholding, however, when there is a big loss (I bought my timeshare from the developer),the withholding becomes something unbearable.

Anyone familiar with FIRPTA? I would Appreciate very much any comments on this. I would like to make sure if need to pay FIRPTA on a timeshare real property investment that made a loss.

Thanks.

Yes, this is an IRS requirement. Painful. Very painful.

In case you are wondering: FIRPTA = Foreign Investment in Real Property Tax Act

Yes, the 10% withholding requirement applies whether or not you have a loss on your sale transaction. In part, that's because the party responsible for withholding (the buyer or closing agent) can't always be sure in advance that you didn't make a profit. Thus, with very few exceptions, the 10% requirement applies. You can't get out of the withholding merely by proving that you didn't make a profit.

If the responsible party fails to withhold, that person or entity is responsible for paying the U.S. government the amount that should have been withheld from your sales proceeds, plus penalties and interest!

To read more about FIRPTA and to see if any of the exceptions apply to you, go to this U.S. government link.

Thanks for all of your help. Your advices are truly appreciated and valued.

just file a return

Can't you just file a US tax return and get a refund?

I know its a hassle but kinda like the VAT refund deal when you leave the EU.

Yes.

See, for example, the next to last paragraph of the "The Foreign Investment in Real Property Tax Act" section of this IRS web page.

What happens if the property is a timeshare outside of the US and so are the sellers? Is that still required?

No. The withholding requirement relates to U.S. real estate. The theory is that the gain on sale of U.S. real estate is taxable in the U.S. Thus, no matter where the buyer and seller live, the U.S. wants to ensure it gets whatever tax may be due. Thus, the withholding law was passed to ensure that there is a deposit of tax with the U.S. government.

Some other countries may have their own rules to ensure payment of tax on such sales.

ctyatty said:

Can't you just file a US tax return and get a refund?

I know its a hassle but kinda like the VAT refund deal when you leave the EU.

Click to expand...

Yes you can. But, the seller needs to apply for a taxpayer id in the US. When you show the seller the paperwork required for you to buy it, it's at about that point that the seller decides to keep his timeshare or find a buyer who will take the risk with a closing company that will look the other way.

Painful. Very painful.

Sometimes, it's just easier to pay the withholding tax as part of the payouts when escrow is closed and just agree to a purchase price that reflects it.