New York foreign investment lawyer Natalia Sishodia (https://sishodia.com/should-i-withhold-firpta-at-closing-on-sale-of-ny-home-if-i-am-not-a-citizen/) of Sishodia PLLC has provided an in-depth analysis of the Foreign Investment in Real Property Tax Act (FIRPTA) and its implications for non-citizen home sellers in New York. In a recent article, Sishodia outlines the critical aspects of FIRPTA, emphasizing the importance of compliance for foreign investors involved in U.S. real estate transactions.
FIRPTA mandates that buyers purchasing U.S. real property from foreign sellers withhold 15% of the gross purchase price to meet tax obligations. This withholding must be submitted to the Internal Revenue Service (IRS) within 20 days following the closing date. The New York foreign investment lawyer underscores the necessity for both buyers and sellers to understand their responsibilities under FIRPTA to avoid potential legal and financial repercussions.
“FIRPTA provides that funds received from a transfer of real estate by a non-U.S. citizen are subject to notice and withholding requirements in compliance with Section 1445 of the Internal Revenue Code,” the New York foreign investment lawyer explains. Sishodia further elaborates that FIRPTA authorizes the United States to tax foreign persons on sales of U.S. real property interests.
Identifying whether the seller is considered a foreign person is a pivotal step in the transaction process. According to FIRPTA regulations, a foreign person includes any individual who is not a U.S. citizen or national, and non-residents without a green card or those who have not passed the substantial presence test. Sishodia advises buyers to obtain a FIRPTA affidavit from the seller, attesting to the seller’s non-foreign status, to determine the necessity of withholding.
Preparation of tax identification numbers (TINs) is another critical aspect highlighted by Sishodia. Foreign sellers must ensure they possess the necessary TINs, such as a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN), well in advance of the closing. Sishodia cautions that non-compliance or failure to provide the IRS with the required evidence of tax status can lead to a rejected withholding certificate application, with the IRS’s decision being final.
Sishodia also outlines specific exceptions to FIRPTA withholding requirements. For instance, if the transferee acquires the property for use as a residence and the sales price does not exceed $300,000, withholding may not be required. Additionally, if the transferor provides a certification stating they are not a foreign person, including their name, U.S. taxpayer identification number, and home address, withholding can be exempted. However, Sishodia emphasizes that FIRPTA withholding rules are complex, and when in doubt, withholding should be applied to mitigate risks.
To adjust the amount withheld, a withholding certificate issued by the IRS can be requested by the transferee, transferee’s agent, or the transferor. These requests typically take about 90 to 120 days to process after the receipt of a complete application. Sishodia advises that if a withholding certificate has been applied for, the required funds must be submitted within 20 days of the withholding certificate notice.
Natalia Sishodia concludes by stressing the importance of consulting with knowledgeable professionals when managing FIRPTA requirements. Sishodia states, “This article is not legal or tax advice. If you are in need of legal or tax advice, our experienced real estate attorneys may be able to help.”
Foreign investors and individuals involved in U.S. real estate transactions are encouraged to seek professional guidance to help ensure compliance with FIRPTA and to address any challenges that might arise due to foreign ownership.
About Sishodia PLLC:
Sishodia PLLC is a New York-based law firm well-versed in real estate transactions, estate planning, and foreign investment. Led by attorney Natalia Sishodia, the firm is committed to providing personalized legal services tailored to the unique needs of each client, facilitating seamless and compliant real estate transactions.
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