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I am selling a US property owned via a US partnership – does FIRPTA withholding apply to me?

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What is FIRPTA withholding?

FIRPTA is a withholding mechanism that the IRS apply to foreign persons (as defined by the IRS) selling real estate in the United States – the withholding rate is 15% of the gross sales price. The withholding tax is claimed as a credit on your tax return to offset any tax due from the disposition of the real estate with any excess withholding being refunded after the submission of your tax return.

What is a US partnership?

A US partnership is a separate legal entity formed in the United States with two or more members/partners who join together to carry on a trade of business. The most common types of partnership are Limited Liability Company (LLC), Limited Partnership (LP), Limited Liability Partnership (LLP), Limited Liability Limited Partnership (LLLP) and General Partnership (GP).

Is my US partnership subject to FIRPTA withholding?

US partnerships are US residents for tax purposes and are not classified as foreign persons by the IRS – meaning that the disposition of US real estate by a US partnership is not subject to FIRPTA withholding. If the members/partners of the US partnership are non-residents then the disposition of US real estate would be subject to foreign partner withholding if the disposition resulted in a profit. The US partnership will be required to withhold tax on the net profit of the partnership and then this withholding is claimed as a credit on your individual income tax returns. Generally, this outcome is more favorable to the taxpayer than FIRPTA withholding as the withholding tax is remitted on the profit from the sale rather than the gross proceeds from the sale.

How can HBI assist?

Whether you own title to real estate in your personal name or through a US partnership, HBI can identify the appropriate withholding mechanism for real estate dispositions. If you do own real estate through a US partnership then it is critically important that you contact HBI prior to the sale of the property so that we calculate the profit on the sale to allow you necessary time to submit the foreign partner withholding tax. The IRS require withholding tax payments to be made on a quarterly basis and will penalize tax payers for failure to make estimated payments.

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