What you need to know as a nonresident who sells U.S. real property interests
If you are selling a piece of U.S. real estate, you may have a tax withholding obligation to the purchaser. The FIRPTA rules require that buyers of U.S. real property know the residency status of whoever is selling the property for reasons explained below.
FIRPTA requires that a purchaser of U.S. real property withhold tax on the gross sale price if the seller is a non-U.S. person. Real property for these purposes is either a piece of real estate or a corporation that holds real estate. A non-U.S. person for this purpose includes all foreign persons and foreign entities selling or transferring property located in the U.S. Any withholding tax owed (including interest) that isn’t remitted becomes a liability of the purchaser.
FIRPTA Withholding Rate Increase
As of February 2016, the FIRPTA withholding tax rate has increased to 15% from the previous rate of 10%. The tax is calculated based on the gross sales price with no consideration for the actual gain or loss. As a result, even on a loss transaction, foreign real property sellers are looking at the potential of a 15% tax withholding from the gross proceeds.
As an example, assume (as a foreign person) you sold a piece of real estate on June 1st for $1,000,000. The purchaser would be obligated to withhold $150,000 of the sale price and remit this to the IRS. This is true regardless of what your basis in the property was at the time of the sale. However, it is possible to request a reduced rate of withholding in advance of the closing to reduce or possibly eliminate this withholding. This can save a substantial amount of money, as any tax that isn’t owed but is withheld would not be available for refund until the following year upon filing a tax return.
There is a process by which you can apply for an exemption from or reduction to this mandatory withholding. Form 8288-B can be filed on behalf of the seller. As long as this form is filed by the date of closing, the purchaser will not be required to remit the withholding tax until notified the form has been processed by the IRS.
- Any purchaser of a U.S. Real Property Interest (USRPI) should be aware of the seller’s U.S. residency status.
- If you are a foreign seller of USRPI, the purchaser will withhold and remit 15% at settlement unless you apply for a withholding exemption.
- There are exceptions from the withholding rules. For example, if the gross sales price is $300,000 or less and the purchaser intends to use the property as a residence, there is no withholding required.
- All of this is in an effort to reduce the amount of withholding up front prior to filing of the tax return by the seller.
We at Freed Maxick have vast experience with these and other international matters. Please contact us if you have any questions.View full article
By: Jeffery T. Zawada, CPA
A few years ago, talk of harnessing energy for commercial or residential sustainability didn’t seem practical. With no replicable models for doing community based energy projects or investments, local development didn’t seem thinkable. But with recent opportunities in community solar, crowdfunding and R&D, there has been a surge in commercial and residential development and investment.
What are other States Doing?
In 2012, California-based company, Solar Mosaic, launched their first community solar investment project, allowing 51 California investors to earn 6.38% returns for investing in a 47 kilowatt solar array on the roof of the Youth Partnership in Oakland. Their subsequent 235 KW project ups the ante; opening up to regular folks in California and New York (and accredited investors in all 50 states).
The Mosaic model turns community solar into a simple investment, letting prospective investors select a particular Mosaic project to invest in, with significantly higher returns than parking money in a U.S. Treasury or savings account. For now, it’s limited to broad participation in just two states, New York and California. This is just one example of how solar companies are expanding the reach of solar energy output.
What is New York Doing?
Governor Cuomo, in his 2013 State of the State Address, announced the Charge New York Program; making NYS part of a clean tech economy. Due to the large amount of money NY is investing in panel installations for home and business; various companies in New York offer incentives and tax credits for both residential and commercial businesses looking to recoup some of the costs.
Companies like New York State Energy Research and Development Authority (NYSERDA) offer many state incentives and credits for commercial and residential builds.
NYSERDA Solar PV Program Incentives- Saves 40-70% off the purchase cost and install on a solar electric system by combining this program with other New York Energy SMART programs;
The NYSERDA Solar Thermal Program Incentive offers both residential and commercial 15-20% off the installed cost of an ST system.
On the state and federal level, NY offers tax credits and exemptions for various solar installations. Some of these include:
The NYS Solar Credit: Is a 25% credit of the total installation cost. You have to file tax form IT-255 to receive the credit. Be mindful; there’s a cap of $5,000 on this. If you are installing a 5kw system, you’ll be due back $5,000 from the state.
The federal solar tax credit: Allows for a 30% solar installation tax credit. This credit differs slightly from NY state credits. You need to calculate your expenses after rebates. For example- on a hypothetical 5kw system priced at $25,000, you can expect back $4,875 (this is by taking the $25,000, subtracting the state solar power rebate of $8,750 to arrive at $16,250. Then take your 30% and you’ll get $4,875).
The NYS solar tax exemption: for the addition of solar panels to your home; giving an exemption from property tax increases, even though you’ll be adding roughly 20 times your annual electricity bill savings to your property value.