A Guide for FIRPTA Home Sellers in Oregon
FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980 and this article only relates to home sellers who are not US residents for the purpose of FIRPTA. If you are a home seller in Oregon who is a US citizen or a permanent resident of the US, FIRPTA doesn’t apply to you and you will not have a special tax withholding requirement at the end of your real estate transaction.
If you are not a permanent resident of the US (aka a green card holder), you may be subject to FIRPTA withholding if you are selling real estate you own in the US. A foreign person is defined by the IRS Code but generally, to be the foreign person, you are not a legal resident of the US or you have not lived in the US for a specific length of time prior to the sale of your real property.
If you are a FIRPTA seller, 10-15% of your total amount realized (sales amount) will be withheld for capital gains tax purposes. Additionally, Oregon has its own withholding taxes for FIRPTA sellers as they are required to file Form OR-18. The amount can be withheld by the escrow through a FIRPTA Addendum to your real estate sales agreement and sent to the IRS after closing. Then IRS then issue a refund in the following tax year after deducting the real tax amount that is due from the FIRPTA seller. I have experience representing FIRPTA sellers and in most cases, I advise them to consult with a CPA to not only fill out the IRS FORM 8288 and OR-18, but to determine what their real taxable amount is compared to the withholding amount. If there isn’t much capital gains tax owed but nevertheless, the withholding amount is 10 or 15%, then the CPA can also file a withholding certificate, which is FORM 8288-B. The certificate basically notifies the IRS for the exact amount due for the tax and after the IRS approves, a reduced tax filing can be possible. It takes up to three months for such approval by the IRS, so in the mean time, the escrow will hold the 10-15% of the withholding amount.
There are also exceptions to the FIRPTA withholding rule set forth by the IRS. You should study to see if you fall within the exception. You can also consult with a CPA or a tax attorney with regard to your “non-foreign” status and provide a Certificate of Non-Foreign Status to be exempt from withholding.
If you are a FIRPTA seller, you may need to hire a tax professional as well as a very competent real estate agent who has dealt with the very issue. Even for most experienced realtors, FIRPTA is too complex and is beyond their understanding of real estate transaction. Although realtors are not supposed to advise tax matters to clients, some understanding of FIRPTA will be helpful to clients administratively when dealing between escrow agents and tax professionals. Your real estate agent also needs to make sure the escrow agent has experience dealing with FIRPTA and can handle IRS filing and other administrative tasks.