August 5, 2005

Thomas C. Roberge & Company
St. Petersburg and Sarasota

Telephone: (727) 822-9393
Contact: TaxInfo@RobergeCo.com
 
Copyright, 2005, Thomas C. Roberge & Company
All Rights Reserved

There have been several misunderstandings recently as to what amount the 10% FIRPTA withholding should be for transactions involving foreign sellers.

The IRS form says that the 10% withholding is on the amount realized by the transferor.  Some think that the amount realized means the gross sale price while others think it is on the net closing proceeds to the seller after all expenses have been deducted.  The term "amount realized" is a misleading term and can be easily misinterpreted.

The amount realized means the gross sales price and not the net proceeds after deducting the closing costs.  For example, assume U.S. real estate is sold for $1 million, with $95,000 in closing costs, leaving $905,000 to the foreign seller before the 10% withholding.  The 10% of the amount realized is $100,000 (10% of $1 million), leaving the seller with closing proceeds of $805,000 ($1 million, less $95,000 closing costs, less $100,000 of FIRPTA withholding).

The foreign seller will apply this $100,000 estimated tax against his or her actual tax liability for the year of sale and will receive a refund or owe tax for the difference.

Please contact us if you have questions.

Internal Revenue Service Circular 230 Disclosure - You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.