Hi this is John Goodman today we are talking about something called FERPA ferp does of course an acronym I'll explain what it means in a minute but here's why first is important FERPA is federal tax law that could make your buyer responsible for the sellers failure to pay tax on the sale of real property that might be disappointing to your buyers so what we're talking about today is how you can help your buyers decrease the risk that the buyer might be responsible for FERPA related problems right here's the concept it's not unusual for non-us citizens non-us tax filers to acquire real estate in the United States it's not unusual for them to buy property for that property to appreciate and the seller sells the property and makes money and then it's not unusual and they make money that they have to pay taxes on that now remember when a seller sells property and makes money it doesn't necessarily mean that they need to pay taxes because the seller can do things to defer the gain on the sale of the real property by doing things like 1031 exchange or perhaps by selling the property through an installment sale another topic but if the seller does owe the money then Congress and the IRS does not want the IRS to have to chase the foreign seller the non-us tax filer to Singapore or Hong Kong or Saudi Arabia to some place outside the United States the IRS does not want to have to chase that person to collect the tax and so what FERPA does and FERPA is eff I our PTA FERPA stands for the foreign investment in Real Property Transfer Act what FERPA does is it requires a withholding of 15% of the sales...
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Firpta exemption Form: What You Should Know
Filing Form 8828 for non-U.S. Real Property Interests If you want to file an election to avoid income tax by claiming exemptions on foreign real property interests, you must complete and file an application for an exemption certificate. This application should be obtained even if you are buying the property through your own sale (by private treaty or arrangement between a citizen and a foreign country, or through a bona fide sale conducted at a licensed auction) and not through an agency or other person authorized by law to make the sales, or and the property is not in a foreign country. When a purchaser files a request for an exemption certificate pursuant to the Foreign Real Property Interests Holding Certificate (Form 3800), the IRS issues a certificate, that exempts the purchaser from the payment of the nonrecognition tax if the property is foreign real property acquired by means of a cash or negotiable transfer in a non-U.S. jurisdiction or at a transferor's residence, and the proceeds of the disposition are subject to a tax penalty; or If you acquire property in a nontransferable foreign transaction and the nonrecognition tax applies after the disposition, the property is subject to taxation if the real estate is transferred outside a non-U.S. jurisdiction; or All real estate (as defined in section 1221 of the Internal Revenue Code) is subject to taxation by the U.S. for nontaxable purposes and all nonresident aliens are subject to taxation by the IRS if the tax is not limited, limited to income derived or retained, or a tax preference is not provided; or If any portion of the proceeds of a sale of the property would be subject to a nonrecognition tax if the nonrecognition tax applied, there are restrictions on the disposition. You can't claim exemption if you have any of the following conditions: • You paid income tax or a surcharge/finance penalty on the proceeds of a sale by a U.S. person to a non-U.S. person; • A portion of the proceeds of the sale was subject to the withholding tax, or the transferor or transferee did not designate a withholding exemption; • You have a foreign bank account in the U.S.
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