Foreign Person or Entity and 1031 Exchanges
Posted by Andy Gustafson on Wed, Jul 28, 2010
Recently I was asked to advise a foreign corporation on how to structure a 1031 exchange or tax deferral strategy. I listened to the proposed transaction, asked a number of questions and provided guidance and information to follow prior to the closing.
Foreign persons and corporations also known as nonresident alien individuals and foreign corporations evaluate and purchase investment real estate every day. When they sell, they are required to inform the Buyer they are a nonresident alien. One of the closing documents specifically will ask this question. In an effort to collect the capital gains tax should the person leave the country, a withholding tax of 10% of the sales price was legislated by the Foreign Investment of Real Property Tax Act of 1980 (FIRPTA).
Form 8288B is completed and filed with the Internal Revenue Service requesting a withholding certificate exempting the foreign person or entity from the withholding tax. Request an International Taxpayer Identification Number (ITIN) and file the 8288B prior to the closing. Individuals file a Form W-7 and entities file Form SS-4 for the ITIN.
A foreign person or foreign corporation must comply with the FIRPTA reporting and withholding requirements if a party to a 1031 exchange. The capital gains deferral strategy applies to the sale of US real property interest by foreign persons only if replaced with US real property and subject to US taxation.
If you would like Atlas 1031 Exchange assist with structuring your 1031 exchange in compliance with the FIRPTA requirements call us at 850.496.0090 or andgus@atlas1031.com.
