New FIRPTA Requirements...

New FIRPTA Filing Requirements Have Serious Consequences for Foreign Real Estate Owners

A properly structured 1031 exchange can eliminate the 15 percent withholding tax from the sale price that is normally required under FIRPTA. But under the new IRS regulations a foreign property seller must now apply for a withholding certificate from the IRS. Furthermore, the seller must have an "International Taxpayer Identification Number" (ITIN) in order to apply for the withholding certificate. Many foreign property owners have never obtained an ITIN.

This is the hard part of the new rules – if the foreign national does not already have an ITIN, it will take anywhere from six weeks to several months to get one issued from the IRS. Without the ITIN, and without applying for the withholding certificate, the seller may not be able to avoid the 10 percent FIRPTA withholding.

Keep in mind, the new rules don't just affect those who are doing a 1031 exchange! Many types of real estate transactions involving foreigners are affected by the new rules. The best advice to any foreign property owner is to obtain an ITIN immediately, because they will need one sooner or later.

And in a 1031 exchange, it is more important than ever that you work only with a Qualified Intermediary with the professional skill and resources to help investors negotiate the tricky new rules.

--The Experts

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