Upon us is a new year and with it comes the start of the 2022 tax season. If you were a foreign seller of U.S. real property in 2021 and were subject to the FIRPTA income tax withholding, you will now be able to apply and possibly get all or part of the withholding back by filing a U.S. tax return and requesting a refund. The amount of gain (or loss) realized, along with other factors such as whether the property was depreciated, will determine whether and how much you will receive.
There is an “expedited” procedure to obtain a partial or full refund of withheld FIRPTA funds, the application for a withholding certificate (Form 8288-B). However, due to the IRS’ well-known processing delays, our firm advises clients, especially those selling property in the second part of a calendar year, to simply remit funds to the IRS via the normal procedure (Form 8288-A).
As to the specific filing requirements, a NRA seller has to possess a U.S. tax identification number to apply for a refund and file Form 1040NR, the U.S. Nonresident Alien Income Tax Return. Note that if you remitted FIRPTA funds to the IRS and you did not have an ITIN at that time, a form W-7 should have been filed requesting that an ITIN be assigned to you. Make sure to inquire with your tax professional on the status of that request.
If you are unsure about the details or have lingering questions, the time to act is now. You should contact your Certified Public Accountant or other tax professional well in advance of the April deadline to avoid the classic bottleneck effect that can cause delays or unnecessary stress.
Fabio Giallanza is a partner with Salcedo Attorneys at Law P.A. He focuses his practice in corporate and commercial transactions. He holds an LLM in Taxation from the University of Miami