Any Foreigners here who own a US LLC? (FIRPTA discussion)

Tax & Legal
1

I’m looking to connect with someone here with a similar situation to ours in that you own a US LLC for the land business but are considered a “Disregarded Entity” wherein you are the sole owner so you are taxed as an Individual and therefore subject to the 15% FIRPTA withholding when you sell land.

We’re following the rules here but its quite the hassle when its handled per transaction. Slows down the closing process a bit. Most people haven’t heard of FIRPTA, so it has to be explained every time.

2

@brendanch

I know dealing with FIRPTA can be a bit tricky. You have to take out 15% of the sale price for taxes because you’re not from the U.S., and explaining this to everyone can slow things down.

Here are some easy ideas to make things smoother:

Be Ready to Explain: Make a simple explanation about FIRPTA to give to buyers or their agents early on. This helps everyone understand what’s going on right from the start. For example, you could say,

“Hey! Just a quick heads-up about something important. When a non-U.S. person, like me, sells property in the U.S., there’s a special tax rule called FIRPTA. What it means is that when I sell this land, 15% of the sale price has to be set aside for U.S. taxes. This is a common rule for foreign sellers to make sure taxes are paid. The money gets taken care of during the sale process, so it doesn’t really change anything for you as the buyer. It’s just a tax thing we need to follow. If you have any questions, I’m here to help!”

Look for Special Cases: Sometimes, you might not have to take out the 15% tax. For example, if you sell the property for less than $300,000 and the person buying it will live there, you might not need to do the tax thing.

Use an Escrow Account: An escrow account is like a special bank account that can hold the tax money. This makes sure the right amount goes to the tax office and can make your job easier.

Ask a Tax Expert for Help: It’s okay to ask someone who knows a lot about taxes for a little advice. They can tell you exactly what to do for your situation.

Keep Learning: Tax rules can change, so try to keep up with the latest news. You can do this by reading updates from tax websites or newsletters.

Give Out Info: Share websites or info about FIRPTA with the people you’re working with. This saves you from having to explain everything over and over.

Talk to Others in the Same Boat: Join groups where people talk about buying and selling U.S. property when they’re not from the U.S. You can learn a lot and maybe even meet people who have been through the same stuff.

Remember, every time you sell something, it might be a little different, so it’s good to be ready for anything.

3

@donyost this is fantastic advice and I’ll share here too what action we took so its a bit easier for anyone else in our position.

  1. Prepping forms 8288 and 8288-a with all of our information along with a write up about what is needed by which party. Essentially the title company, buyer agent, or buyer can be the withholding agent but it can’t be the seller. Both forms must be filled out and sent to the IRS along with the funds withheld within 20 days of the sale. The IRS then stamps a copy of 8288-A and sends it to us, the seller which we then use towards tax time to show the tax credit.

  2. We no longer close outside of title but if we were doing many deals like that I would do everything possible to change the company status to avoid FIRPTA.

  3. Better than prepping the buyer is finding Title Companies that have experience with FIRPTA. For example one title company we went with had no idea it was a huge headache and put the burden on the buyer. A nightmare. Next close we did we found a Title Company that can close statewide, acts as the withholding agent and fills out and files all the forms. Nothing needed from the buyer at all and no issue for them. Very smooth, very easy. This is the way forward.

  4. We will be taking action to become a domestic corporation or at least be exempt from FIRPTA (foreign partnership option).

  5. The 300k purchase price exemption does not apply to vacant land unfortunately.

  6. So the real biggest issue with FIRPTA is it eats at our cash flow and we need to account for that.