irs

FIRPTA – The Foreign Investment in Real Property Tax Act of 1980

August 25, 2020 by khproperties Leave a Comment

The first time you hear someone say FIRPTA out loud (sound it out as if it was a word and not an acronym), you’re more than likely to think that person is making words up. Like many acts of the US government, FIRPTA has a much lengthier and descriptive name: The Foreign investment in Real Property Tax Act of 1980. The act allows for tax withholding and reporting when a “foreign person” (see below) sells real estate in the United States. FIRPTA puts the obligations for withholding and reporting onto the buyer, which can make it a little frightening if you’ve never dealt with it as a buyer. As with most things in real estate, it’s all a matter of asking the right questions and talking to qualified people who understand FIRPTA and know how best to advise you when you find yourself in this situation.

First, let’s define “foreign person.” According to FIRPTA, a foreign person is 1) an individual that is not a US citizen or a resident alien, 2) a foreign corporation that is not being treated as a domestic corporation, or 3) a foreign partnership, trust, or estate.

Under FIRPTA, a buyer must withhold a percentage of the “amount realized” (purchase price) and within 20 days of closing report and pay the tax to the IRS. The percentage is determined by several conditions. If the buyer is acquiring property that is not intended to be their residence, FIRPTA requires the buyer to withhold 15%. If the property being acquired is going to be the buyer’s residence, then the percentage of withholding ranges from 0-15% and depends on the sales price. Up to $300,000 it is 0%, over $300,000 and up to $1,000,000 it is 10%, and over $1,000,000 it is 15%. Like many IRS regulations, there are exemptions.

If you are notified that your transaction has triggered FIRPTA, you should call an attorney, CPA, or other tax professional, preferably one familiar with The Foreign Investment in Real Property Tax Act of 1980. As there are exemptions, these professionals can guide you through your situation and recommend what your next steps will be. In many cases, a consultation with a tax professional will allow you to know the seller may be exempt and you as a buyer can move to closing without any further action. Exemptions include a sales price of less than $300,000, a seller able to provide an Affidavit of Non-Foreign Status, a seller providing a FIRPTA Withholding Certificate from IRS, and when sellers are participating in a 1031 exchange and can provide the appropriate information about the sale in writing. As with anything of this nature, the laws and how they work can change over time and we are not tax professionals, so it is best to ask your CPA for tax advice.

In our experience, many of the title companies will provide access and a free consultation with a tax professional who can advise you on your next steps and whether or not you will need to withhold. Further time may be required if it is decided that withholding is necessary as there are rules and as you well know with the IRS, there will be forms to be filled out.

As it is tax related, there are penalties for not withholding the appropriate amount, not reporting it, and not reporting it within the allowed amount of time. And the IRS can tag on interest as well – so you really want to make sure you follow the letter of the law on this one (which is why we highly recommend a tax professional, particularly one with experience with FIRPTA).

While FIRPTA can seem scary at first, with a little patience and consultation with the right people, you can get through the regulations and successfully close on your new home or other property.

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7 Tax Deductions Your Home May Qualify You For

March 9, 2016 by khproperties Leave a Comment

It’s time to start thinking about tax deductions. No matter how much we wish we could avoid the heaps of paperwork and the inevitable feeling of dread that comes with tax day, the IRS waits for no man. But wait…do you own a house? There may be some tax deductions lurking in the walls of your home, so you may want to think about where you can save some money and get those tax deductions calculated into this year’s taxes. Kimberly Howell Properties is not a CPA or accounting firm and although these deductions do exist, we highly recommend you consult with someone with expertise in this area before making the decision to take any tax deductions.

Mortgage Interest Deduction – The interest you pay on your home loan is one of the big tax deductions offered to homeowners. By deducting the interest you’re paying, you can save quite a bit, especially in the earliest years of owning your house. You’ll need to itemize your deductions, but you can reap big benefits from this deduction.

Property Tax You can deduct state and local property taxes on your IRS returns.

Home Office If you have a home office that is dedicated space that’s not used for any other purpose (ie your dining room can’t serve as a dining room and an office), you may be able to deduct it as part of a home office. You can even deduct part of a room for a home office, but remember, it must be 100% office space and nothing else.

Energy Efficient Tax Credits If you’ve added any energy efficient improvements to your home, you should talk to your accountant or CPA about them as they may be eligible for a tax credit. The government changes these programs from time to time, so be sure you check to see what the latest energy efficiency tax deductions are.

Medical Improvements If you have home improvements that were made for medical reasons, there may be some tax savings in there for you. You can’t take a tax deduction for the entire amount of the expense, so check with your tax professional on this one to better understand how it is calculated.

Capital Gains Tax Often misunderstood, the capital gains tax can affect the amount you pay if you sell your home, but there are exclusions. If you’ve used the home as your primary residence and have lived there for 2 out of the five years prior to the sale, you will not have to pay capital gains taxes on the first $250,000 (that’s the gains on the sale, not the sales price) or $500,000 if you file jointly with someone.

As always, we remind you to seek the advice and assistance of a qualified tax professional when dealing with the IRS and your taxes. If you need recommendations, contact us and we can assist you in locating one that best suits your needs.

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Tax Return Deadline – Mail Your Returns Today!

April 17, 2012 by khproperties Leave a Comment

As I posted last week, this year’s April 15th filing deadline for federal taxes has been moved to April 17th…today!!! So if you haven’t done so already make sure you get your tax returns filed by midnight tonight. Don’t forget and good luck with them!

As usual, Kimberly Howell Properties suggests you work with a qualified tax professional when filing your return, particularly if you own a home (or just recently bought or sold one). There are many tax advantages to owning a home and speaking with a qualified professional can help you avoid missing out or making a mistake. If you need recommendations, feel free to contact one of our agents to help.

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Tax Day – File 2011 Tax Returns By April 17th

April 15, 2012 by khproperties Leave a Comment

Tax day is always April 15th of every year, but on those years that the deadline for filing your tax returns with the IRS falls on a weekend, you have until the following Monday to file. This year however, your 2011 tax return is due on April 17th…a Tuesday.

Federal law makes a provision for tax days that land on a federal holiday to be moved to the following weekday (much like the weekend rule). In this case, it is not a federal holiday, but a District of Columbia holiday (which are viewed as federal holidays in the case of the tax law). Emancipation Day marks the day in 1862 when Abraham Lincoln signed the Compensated Emancipation Act, a full nine months before the historic Emancipation Proclamation. This act freed some slaves in service in the District of Columbia and also compensated those that were freed. Emancipation Day is similar to Texas’ Juneteenth.

Will you be spending your weekend working feverishly to finalize your taxes? Just remember to file them on or before April 17th – and don’t forget to call your tax professional to see what tax advantages you might have to owning a home.

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First Time Homebuyer Tax Credit Lookup Tool

March 14, 2012 by khproperties Leave a Comment

The first time home buyer tax credit is bringing up a lot of questions of repayment this year, so the IRS took notice and has created a look up tool to assist buyers who received the tax credit in the past.

Home buyers thinking of selling or renting a home that they received the first time homebuyer tax credit on and those who bought homes in 2008 (and received the original tax credit which is repayable in fifteen annual installments) should gather their Social Security number, date of birth, and complete address before visiting the First Time Homebuyer Tax Credit Lookup Tool. If you file a joint return, you may only access your portion of the credit, so keep that in mind.

If you’d like more information on the Lookup Tool, please visit the IRS information page.

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First Time Home Buyer Tax Credit – Gone, but not forgotten.

January 25, 2012 by khproperties Leave a Comment

It’s been awhile since we’ve heard talk of the first time home buyer tax credit, but recently in our office it came up once again. No, there’s no new extension and no new credit to claim…instead the topic was, what happens if a homeowner sells their home before the three year occupancy requirement? Will the homeowner owe money to the IRS? (Please note: this post does not apply to the $7,500 tax credit from 2008 – this deals with the $8,000 tax credit from 2009 and 2010.)

For homeowners who claimed the first time home buyer tax credit in 2009 and 2010, the credit came with one caveat: you had to own and live in the home for a minimum of three years. As we are now in 2012, some homeowners are just beginning to hit the three year mark and questions are arising when they desire to sell their home.

If your three years have passed (three years from the closing date of your home purchase), you are free to keep the money from the tax credit and you owe the IRS nothing. For example, you would have had to have purchased your home in January of 2009 in order for your three year waiting period to be up January 2012.

What if you bought the home later in 2009 or somewhere in 2010? Based on today’s date (January 25, 2012), if you bought you home in late January 2009 or later, you’re still within your required three year ownership and occupancy period. Because of this limitation within the law, if you were to sell your home, you would have to repay the entire $8,000 tax credit back to the IRS (it would be added as additional tax to your next filing). If you had a zero balance when you filed with the IRS – you would now have an $8,000 tax liability due in full when you file!

If you do choose to sell within that three year period you will need to file a Form 5405 (the same form you used to claim the first time home buyer tax credit) with your returns. As with anything tax-related, we highly recommend you speak with a tax professional when filing or if you have questions. If you’re thinking of selling your home, be prepared to answer questions from your agent about when you bought it and whether or not you claimed the $8,000 tax credit – knowing this fact in advance can save any surprises down the road for you or your Kimberly Howell Properties agent.

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