What is FIRPTA?

FIRPTA stands for Foreign Investment Real Property Tax Act. It’s a federal tax withholding that applies to real property interest sales when the seller is not a U.S. citizen. “Real property” includes many different types of transactions but does apply to real estate and timeshare sales.

According to the tax law, all non-resident aliens selling U.S. property must withhold 15% of the sales price and send it to the Internal Revenue Service (IRS).

In legal terms, someone selling U.S. real interest property who is a “non-resident alien” is subject to the withholding. A non-resident alien is someone who (among other things) isn’t a U.S. citizen, doesn’t have a green card, or doesn’t show a “substantial presence” in the United States.

FIRPTA ensures a non-US seller pays the right amount of tax on their real estate transaction. While the amount of withholding is 15% of the gross sales price, this is often more than the tax that is actually owed. When this happens, sellers can apply for a refund of the extra payment.

Does FIRPTA affect me?

FIRPTA only goes into effect when someone who isn’t a U.S. citizen wants to sell real interest property in the US.

The responsibility of withholding 15% of the gross sales price usually falls on the buyer. Buyers are responsible for withholding the tax on behalf of the seller and are in charge of making the payment to the IRS. If you were supposed to withhold the tax and didn’t, you could face penalties and interest on the amount of tax that’s owed. Due to this, it’s very important that buyers are aware of a seller’s current citizenship status.

Sellers will have 15% of the gross sales price taken out of their final payment. If you are a non-U.S. citizen but think you may be exempt from FIRPTA, you’ll need to show proof to the IRS of your taxpayer status.

Does FIRPTA affect me?

Here’s how non-U.S. sellers can avoid the FIRPTA tax withholding:

You have a U.S. Social Security card or Individual Taxpayer ID Number (ITIN).

You plan to reinvest the money you got as a result of the sale back into a U.S. business or other real property interest (and tell the government your intentions).

The profit from the property sale was $0

If you don’t have an ITIN, you can apply to get one when you fill out your FIRPTA paperwork. This process can take a significant amount of time. We advise you to contact a FIRPTA compliance company as soon as possible so that closing isn’t delayed.

Often, the amount of FRIPTA tax withholding is more than the actual tax liability of the transaction. When this happens, sellers may apply for a refund of the extra payment. Many times sellers receive payments in full when they apply for refunds. The simplest way to apply for a refund is to fill out a U.S. federal income tax return for the year of the sale. If you don’t want to wait until tax season the year after the sale, you can fill out a few forms and apply for an early refund.

How does FIRPTA apply to DVC resale transactions?

The most crucial part of knowing how FIRPTA may affect your DVC membership sale is to know whether the person selling their membership is a U.S. citizen. Our team at DVC Market will help determine this when you initiate the sales process. Our title company will withhold the 15% FIRPTA tax withholding on behalf of the seller and send it to the IRS. Additionally, our title company will help non-U.S. sellers through the process of applying for a refund for an additional fee.