Non-Resident Alien Who Sold U.S. Real Estate? Get Your Over-Withheld Tax Refund!

Non-Resident Alien Who Sold U.S. Real Estate? Get Your Over-Withheld Tax Refund!

Hello! Are you a Non-resident Alien who recently sold U.S. Real Property? You were likely informed that a significant amount was withheld from the sales proceeds. This is due to the Foreign Investment in Real Property Tax Act (FIRPTA). In connection with the Forms 8288 and Form 8288-A issued due to FIRPTA, there's a high probability you can receive a substantial tax refund!

In this article, we'll explore step-by-step what FIRPTA withholding is, why these refunds often occur, and the steps you need to take to claim your refund. Remember, an IRS ITIN (Individual Taxpayer Identification Number) may be necessary for the tax refund process.

1. What are FIRPTA and Forms 8288 / 8288-A?

• FIRPTA (Foreign Investment in Real Property Tax Act): This is a U.S. law designed to ensure that the U.S. government collects taxes on the profits (capital gains) made by foreign persons from the sale of U.S. real property interests.

• Withholding: Under FIRPTA regulations, when a non-resident alien sells U.S. real property, the Buyer or their Withholding Agent must typically withhold 10% or 15% of the gross sales price and pay it to the Internal Revenue Service (IRS). (Note: This is not the actual tax owed, but rather a prepayment of potential tax.)

• Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests): This form is used by the buyer (or withholding agent) to report and pay the withheld tax to the IRS, covering the overall transaction.

• Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests): This statement details the withholding for each foreign seller. The buyer (or withholding agent) submits this form to the IRS along with Form 8288.

Copies of Form 8288 and Form 8288-A are crucial documents for you to claim a refund of the withheld amount!

2. Why is a Tax Refund Highly Likely? (The Key Question!)

The most important reason is that there can be a significant difference between the amount withheld and the actual tax you owe.

• Withholding Basis: FIRPTA withholding is calculated based on the Gross Sales Price of the property (e.g., 15%).

• Actual Tax Basis: However, the actual tax you owe is calculated only on the net profit from the property sale, i.e., the Capital Gain (Sales Price - Acquisition Cost - Related Expenses). Note that if the property was held long-term, special capital gains tax rates (0%, 15%, 20%) may apply.

Example: Let's say you sold U.S. real estate for $500,000, and 15% ($75,000) was withheld. However, after deducting property acquisition costs and selling expenses, your actual capital gain was $100,000, and your actual U.S. tax on this gain was calculated to be $20,000. In this case, a refund of $55,000 ($75,000 withheld - $20,000 actual tax) could occur!

If the sale resulted in a Capital Loss (sales price less than purchase price) or if you qualify for a 0% long-term capital gains tax rate, you may have no tax liability and could receive a full refund of the amount withheld.

3. How Do I Apply for a Tax Refund?

If tax was withheld under FIRPTA and you want to receive a refund, you must follow these steps. Refunds are not automatic; you must apply for them by filing a U.S. Tax Return.

• Step 1: Obtain Copies of the U.S. Real Estate Sales Contract, Form 8288, and Form 8288-A:

• You cannot apply for a refund without these documents. After the property sale, you must obtain the U.S. real estate sales contract, Form 8288, and Form 8288-A from the buyer or the escrow/title company that handled the closing.

• Step 2: Prepare U.S. Nonresident Alien Income Tax Return (Form 1040-NR):

• Non-resident aliens must use Form 1040-NR (U.S. Nonresident Alien Income Tax Return) to file their tax return. This is the official way to claim your refund.

• You must accurately report information related to the property sale (including calculation of capital gain or loss) on this form.

• Crucially: You must claim the withheld tax amount shown on your copy of Form 8288-A as a tax payment (credit claim).

• Step 3: Attach a Copy of Form 8288-A:

• You must attach a copy of Form 8288-A to your filed Form 1040-NR. This serves as proof of your tax payment.

• Step 4: Calculate Your Tax and Determine the Refund Amount:

• Through Form 1040-NR, you will calculate the total tax you actually owe.

• Compare this with the withheld tax amount stated on Form 8288-A to determine your final refund amount.

• Step 5: Submit Your Tax Return:

• Submit the completed Form 1040-NR and the attached copy of Form 8288-A, along with any other required documents, to the IRS. It's important to meet the submission deadline. Generally, you can claim a refund within three years from the year following the property sale.

4. Important Considerations and Professional Advice

• Timing: It can take time to receive the necessary documents and file your tax return, and IRS processing can take several months. Therefore, it's advisable to obtain your documents quickly and begin the refund application process as soon as they are ready.

• Record Keeping: You must make copies of all submitted documents (Form 1040-NR, Form 8288-A, etc.) and any correspondence with the IRS and keep them in a safe place.

• Professional Help and ITIN:

• Tax filing and FIRPTA refund procedures for non-resident aliens selling U.S. real estate can be very complex. Calculating capital gains or applying tax laws, in particular, may require professional assistance.

• A Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) is essential for filing a U.S. tax return. If you do not have an SSN and need to obtain an ITIN, the process can be somewhat challenging.

• Therefore, if you need an ITIN or require assistance with complex tax calculations and the overall preparation of Form 1040-NR, it is strongly recommended that you consult with a CPA specializing in FIRPTA and non-resident alien taxation to ensure accuracy and a smooth process.

In Conclusion

If tax was withheld in connection with Form 8288 and Form 8288-A after selling U.S. real estate, this amount is often much larger than the actual tax owed. By securing your sales agreement, Form 8288, Form 8288-A, preparing for an ITIN application if necessary, and filing a Form 1040-NR tax return, you can receive your valuable refund. If the process seems complicated, don't hesitate to seek professional help to ensure you don't miss out on a potentially significant refund!

Disclaimer: This article is for general informational purposes only and does not constitute tax or legal advice. You should consult with a qualified tax professional regarding your specific situation.

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[U.S. Accounting] The Certificate of Investment, prepared by a U.S. Certified Public Accountant after establishing a U.S. local company / CPA Letter

[U.S. Accounting] The Certificate of Investment, prepared by a U.S. Certified Public Accountant after establishing a U.S. local company / CPA Letter

When establishing a U.S. local company and making a foreign direct investment from Korea to the U.S., it is typically required by Korean commercial banks, in accordance with the obligation to report the acquisition of foreign securities, for a Certificate of Investment signed by a U.S. Certified Public Accountant to be provided.

* Mandatory Documents for Foreign Securities Acquisition Reporting (within 6 months after remittance)

1) Foreign Securities Acquisition Report

2) Documents verifying the establishment: U.S. local company's certificate of registration or notarized documents

3) Documents verifying the acquisition of securities: Copies of securities (including par value, quantity of acquired shares, and acquisition percentage) or the Certificate of Investment signed by a U.S. Certified Public Accountant

The contents that should be included in the Certificate of Investment may vary by Korean commercial banks, but typically should include the following:

1) Date of capital contribution to the U.S. local company

2) Amount invested in the U.S. local company

3) Certificate of Investment prepared by a U.S. Certified Public Accountant (including the signature and CPA license number of the U.S. Certified Public Accountant at the bottom of the document)

* Required Documents for preparing the Certificate of Investment by a U.S. Certified Public Accountant

1) Records of withdrawals from Korean individual/company bank accounts

2) Records of deposits into the U.S. company bank account

3) U.S. company’s financial statements (as of the date of investment) (with the signature of the representative)

4) U.S. corporate documents

    a) If a C-Corporation, Certificate of Incorporation

    b) If a C-Corporation, Bylaws

    c) If an LLC, Certificate of Organization

    d) If an LLC, Operating Agreement

    e) U.S. Company EIN Letter

    f) U.S. Company shareholder register

    g) Passport copies (for individuals) or certificate of registration (for companies) of investors

    h) Copies of investor's SSN, ITIN, or EIN Letter (if applicable)

[Disclaimer] The above information is for reference purposes and does not have legal effect.

#ForeignDirectInvestment #Certificate_of_Investment #CPA_Letter #US_InvestmentCertificate #InvestmentCertificate #US_Certificate_of_Investment

People may want to file a tax return – even if they aren’t required to do so

People may want to file a tax return – even if they aren’t required to do so

Some people choose not to file a tax return because they aren't legally required to file, but they could be missing out on refundable tax credits or an income tax refund. This could apply to someone if they:

• Have had federal income tax withheld from their pay.

• Made estimated tax payments.

• Qualify to claim refundable tax credits.

Here are a few of the valuable tax credits eligible people can claim on a tax return

• Earned Income Tax Credit – The EITC helps workers who earned $59,187 or less when they file their tax return. Taxpayers can use the EITC Assistant on IRS.gov to check their eligibility.

• Child Tax Credit – Taxpayers can claim the Child Tax Credit if they have a qualifying child under the age of 18 and meet other qualifications.

• Credit for Other Dependents – Taxpayers who do not qualify for the child tax credit may qualify for the Credit for Other Dependents. This includes people who have:

• Dependent children who are age 18 or older at the end of 2022.

• Parents or other qualifying individuals they support.

• Education credits – Education expenses can add up fast, but there are two higher education credits to help. The American Opportunity Tax Credit is for qualified education expenses for the first four years of higher education. The Lifetime Learning Credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution.

Source: IRS

Disclaimer: The above information is for reference only and has no legal effect.

Establishing a U.S. Corporation as a Foreign Investor: Applying for EIN and ITIN, Opening a U.S. Corporate Bank Account

[Establishing a U.S. Corporation as a Foreign Investor: Applying for EIN and ITIN, Opening a U.S. Corporate Bank Account]

Foreign investors can establish a U.S. corporation in the form of a C Corporation, which is a typical stock company, or an LLC, which is a limited liability company. Foreign investors can establish a U.S. corporation in any state in the United States they desire, regardless of their U.S. visa or status.

If a C Corporation is established, the basic corporate documents that the corporation must prepare are the Certificate of Incorporation and Bylaws. If an LLC is established, the basic corporate documents that the corporation must prepare are the Certificate of Organization and Operating Agreement.

Once these basic corporate documents are prepared, the corporation can apply for an Employer Identification Number (EIN), which is the Business Tax ID, from the IRS. Foreign investors cannot apply online for an EIN, so they must apply by fax or mail.

After receiving the EIN Letter from the IRS, the individual tax identification number (ITIN) can be applied for. To apply for an ITIN, foreign investors must prepare an employment contract between the U.S. corporation and the ITIN applicant and complete Form 8233 for C Corporations. For LLCs, the ITIN applicant must prepare the Operating Agreement that shows their ownership percentage. The prepared documents, along with other required documents, must be submitted to the IRS as an ITIN application package. Once the IRS completes the internal ITIN issuance process, the ITIN Letter will be sent by mail to the ITIN applicant.

To open a U.S. corporation bank account, U.S. banks typically require the following documents. Once these documents are submitted and identity is verified, a U.S. corporation bank account can be opened. Since each bank branch may have different requirements, it is recommended that foreign investors confirm the requirements in advance before visiting a U.S. local bank.

1) Required documents for opening a bank account for a C Corporation:

    a) Certificate of Incorporation

    b) Bylaws

    c) EIN Letter

    d) ITIN Letter

    e) Passport

2) Required documents for opening a bank account for an LLC:

    a) Certificate of Organization

    b) Operating Agreement

    c) EIN Letter

    d) ITIN Letter

    e) Passport

Disclaimer: The above information is for reference only and has no legal effect.

ITIN Renewal Notice (Updated 2022.12.09)

ITIN Renewal Notice (Updated 2022.12.09)

Expired ITINs: If your ITIN wasn’t included on a U.S. federal tax return at least once for tax years 2018, 2019, and 2020, your ITIN will expire on December 31, 2021. 

ITINs with middle digits (the fourth and fifth positions) “70,” “71,” “72,” “73,” “74,” “75,” “76,” “77,” “78,” “79,” “80,” “81,” “82,” “83,” “84,” “85,” “86,” “87,” or “88” have expired. In addition, 

ITINs with middle digits “90,” “91,” “92,” “94,” “95,” “96,” “97,” “98,” or “99,” IF assigned before 2013, have expired. 

Note: If you previously submitted a renewal application and it was approved, you do not need to renew again. Otherwise, you should submit a completed Form W-7, Application for IRS Individual Taxpayer Identification Number, US federal tax return, and all required identification documents to the IRS.

Source: IRS

(https://www.irs.gov/individuals/individual-taxpayer-identification-number)

[U.S. Tax] What is an ITIN?

[U.S. Tax] What is an ITIN?

A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS.

Taxpayer Identification Numbers (TIN) are classified as follows:

     * Social Security number "SSN" 

     * Employer Identification Number "EIN" 

     * Individual Taxpayer Identification Number "ITIN" 

     * Taxpayer Identification Number for Pending U.S. Adoptions "ATIN" 

     * Preparer Taxpayer Identification Number "PTIN"

1) What is an ITIN?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number (SSN) from the Social Security Administration (SSA).

2) What is an ITIN used for?

IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security numbers. They are issued regardless of immigration status, because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. ITINs do not serve any purpose other than federal tax reporting.

An ITIN does not:

     * Authorize work in the U.S.

     * Provide eligibility for Social Security benefits

     * Qualify a dependent for Earned Income Tax Credit Purposes

3) Do I need an ITIN?

     Does the following apply to you?

     1. You do not have an SSN and are not eligible to obtain one, and

     2. You have a requirement to furnish a federal tax identification number or file a federal tax return, and

     3. You are in one of the following categories:

          * Nonresident alien who is required to file a U.S. tax return

          * U.S. resident alien who is (based on days present in the United States) filing a U.S. tax return

          * Dependent or spouse of a U.S. citizen/resident alien

          * Dependent or spouse of a nonresident alien visa holder

          * Nonresident alien claiming a tax treaty benefit

          * Nonresident alien student, professor or researcher filing a U.S. tax return or claiming an exception

If so, then you must apply for an ITIN.

Furthermore, you may be required to get the ITIN or/and EIN when

     * You open a U.S. business bank account,

     * You buy or sell a U.S. real estate,

     * You sign contracts,

     * You file tax forms, or

     * You register accounts at Payoneer, PayPal, Stripe, indiegogo, Amazon, Shopify, etc.

Source: IRS

[Disclaimer] This is used only for your information and is not legally binding.

Picture: IRS ITIN & EIN Acceptance Agent FIRST Listed in South Korea in the IRS