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You are here: Home / Archives for tax

tax

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

August 25, 2020 by khproperties 1 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.

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

 

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.

image courtesy of cafecredit

Filed Under: Buying a Home Tagged With: tax, firpta, buying a home, irs

3.8% Sales Tax on Real Estate Thanks to Obamacare?

September 26, 2012 by khproperties Leave a Comment

Obamacare H.R. 3200

I feel like I talk more about the 3.8% “sales tax” on real estate (via the Health Care Reform Act or Obamacare as it has become known) more than I do most other things, but that’s because it keeps surfacing in different forms – and always incorrect. While we can argue all day about the idea of whether it’s right or wrong, that is not for this forum. There are plenty of places to argue the pros and cons – our job as real estate agents is to disseminate the truth about real estate topics, so once again, I find myself speaking out about the current emails circulating the internet.

The most recent email goes back to the usual misguided mathematical equations that results in anyone selling a home winds up owing a huge new tax. However, the truth is it doesn’t quite work like that. While there is a tax for some (correctly it is not a sales tax), most people will never pay this tax. The Health Care Reform Act (H.R. 3200) is very clear on how the tax is levied and on who – if you’d like to see the breakdown, I recommend either of these two articles I have written previously (which have been fact checked and confirmed by independent sources as being correct): Healthcare Law and the 3.8% “Sales Tax” or 3.8% “Sales Tax” on real estate via the Health Care Reform Bill? I also highly recommend reading these two posts: The 3.8% real estate tax on home sales. Truth or Fiction? (from PhoenixRealEstateGuy) and New Summary Explains the 3.8% Tax (from National Association of REALTORS®)

As always, our main mission is to provide our clients and those in our community with the best real estate information possible. Please, spread these posts around to your friends, particularly if they have been known to send you the emails with incorrect information. We can only reach more people with your help.

image courtesy of Listener42

Filed Under: Sell Your Home Tagged With: obamacare, tax, healthcare, medicare, facts, 3.8%, sales tax

Healthcare Law and the 3.8% “Sales Tax”

July 3, 2012 by khproperties Leave a Comment

United States Supreme Court

With the recent decision by the Supreme Court to uphold the Healthcare Law (aka “Obamacare“) and all the talk of “the tax” being floated around, I suspect we will once again be hearing and seeing word about the Medicare tax of 3.8% on home sales. I’ve written about this extensively on various blogs, including this one, so I thought I’d take a moment to remind everyone to check the facts and read the article, which was thoroughly researched (and has been quoted and cited many times over). While there is a 3.8% tax, many home owners will not be affected by it at all. Knowing how it is calculated will help you understand the ramifications of this small piece of the Healthcare Law.

Read the full article here: 3.8% “Sales Tax” on real estate via the Health Care Reform Bill?

image courtesy of laura padgett

Filed Under: Sell Your Home Tagged With: 3.8%, sales tax, obamacare, tax, healthcare, medicare, facts

Tax Return Deadline – Mail Your Returns Today!

April 17, 2012 by khproperties Leave a Comment

Tax Filing Dealine - IRS

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.

401K

Filed Under: Homeowner Tips Tagged With: deadline, 2011, april 15, april 17, emancipation day, irs, 2012, tax, file

Tax Day – File 2011 Tax Returns By April 17th

April 15, 2012 by khproperties Leave a Comment

IRS Deadline - April 17, 2012

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.

image courtesy of 401K

Filed Under: Homeowner Tips Tagged With: irs, 2012, tax, file, deadline, 2011, april 15, april 17, emancipation day

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