The FIRPTA Affidavit and Certification of Non-Foreign Status
Since FIRPTA is a U.S. federal act, the affidavit requirements are the same, whether the disposition of a property is in Florida, Arizona, California, Hawaii, or any other U.S. state. A disposition includes a sale or exchange, liquidation, redemption, gift, or a transfer.
If the property is in California, the disposition is also subject to California Form 593 (Real Estate Withholding Statement). If the property is in Hawaii, the disposition is also subject to HARPTA (Hawaii Real Property Tax Act).
Under FIRPTA, the buyer acts as the withholding agent and is responsible for withholding the appropriate rate of tax, if any, from the disposition of the property if the seller is a foreign person (non-U.S. resident). The buyer is then responsible for remitting that amount to the IRS. See FIRPTA Exemption & Withholding Rates.
Note: The following information applies to individual buyers and sellers. There are different rules for corporations, partnerships, or other entities.
Certification of Non-Foreign Status
With the Certification of Non-Foreign Status, the seller confirms that they are a U.S. person, and not a foreign resident, for the purposes of U.S. taxation. This is defined in Section 7701 of the Internal Revenue Code. If the seller is defined as a U.S. resident, meeting the IRS Substantial Presence Test, then FIRPTA may not apply.
In this certification the seller certifies that no tax withholding is required, and the seller provides the following information which is notarized.
- A description of the property being sold.
- An affidavit that the seller is not a non-resident alien for U.S. income tax purposes.
- The seller’s Tax Identification Number (TIN).
- The seller’s address.
If there is more than one seller, the Certificate of Non-Foreign Status is to be completed for each one.
The Substantial Presence Test
According to the IRS under Internal Revenue Code Section 7701(b), You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 years immediately before that.
FIRPTA Affidavit – Exemption or Reduced Withholdings
The calculation of the withholding rate on the sale of your property starts with determining the intention of the purchaser(s).
If the purchaser is not an individual, you are not eligible for any reduction of, or exemption from, withholdings. The withholding rate in this case is automatically 15% of the gross sale proceeds.
If the purchaser is an individual, you may be eligible for a reduction or exemption if the purchaser meets certain conditions.
You may be eligible if:
- The purchaser, or a member of the purchaser’s family, intends to use the property as a personal residence.
- The purchaser, or a member of the purchaser’s family, intends to reside at this residence for a minimum of 50% of the time each year for the first two years following the purchase date.
If these two conditions apply, the purchaser should state those intentions on a residential use affidavit (FIRPTA affidavit), signed and provided to you. This is not mandatory for the purchaser to sign. If the purchaser is not willing to sign an affidavit, the statutory 15% withholding will apply.
The FIRPTA Affidavit Is Just One of Many FIRPTA Steps
If you’re like most sellers, you’re probably feeling a bit overwhelmed by everything that needs to be done. Relax, our Canadian buddy. Help is on the way.
We work like busy beavers on your project until it’s successfully completed. We’ll:
- Assist with the preparation of all required forms relating to FIRPTA.
- Communicate with and provide your title or escrow company with all required FIRPTA documentation for submission to the Internal Revenue Service (IRS).
After the closing of your sale, we’ll do the following:
- As an IRS Certified Acceptance Agent, we will assist you in obtaining an ITIN (Individual Taxpayer Identification Number) for each of the owners of the property.
- File the U.S. federal and state tax returns (if state income tax reporting is required) and if desired, the Canadian tax returns for each seller.
Let FIRPTA CANADA Handle the Entire FIRPTA Process for You!
Our services can be provided in person or virtually through our two offices, located in Calgary and Toronto. Contact us to start the process!