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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22653
Experience:  Taxes, Immigration, Labor Relations
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Close to closing sale of a Florida timeshare to a Mexican firm. US

Resolved Question:

Close to closing sale of a Florida timeshare to a Mexican firm.
US escrow firm says seller must pay 19% tax before closing.
Escrow firm says that under NAFTA tax paid income received from
Mexico is tax-exempt in Canada
Is all of this correct?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Because the property is NOT located in Canada and sellers are NOT Canadian residents - there is no withholding for Canadian tax purposes - but for US tax purposes only based on the location of the property.
General Rule is that the Foreign Investment in Real Property Tax Act (FIRPTA) requires a FIRPTA withholding tax of 10% of the amount realized on the disposition of all U.S. real property interests by a foreign person. A buyer of U.S. real property interest from a foreign investor is considered the (transferee) and also the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the buyer may be held liable for the tax.
The foreign person disposing of a U.S. real property interest may have the 10% withholding reduced if certain conditions are met and Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, is timely filed and accepted by the IRS.

LEV :

Reduced withholding certificates may be submitted under the following situations:
--The disposition of the U.S real property interest takes place under one of the non-recognition provisions of the Internal Revenue Code.
--When the transferor’s maximum tax liability on the disposition is less than the amount otherwise required to be withheld.
--The transferor or transferee wants to come under certain installment sale rules.
--The transferor or transferee enters into an agreement with the IRS by posting a type of security (letter of credit, bond, etc.).
--The transferor or transferee may enter into a 12 month agreement with the service to obtain a “blanket withholding certificate” for multiple properties.
--A nonstandard application may be submitted for unique situations that do not fit into the above categories.

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Expert:  Lev replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

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Expert:  Lev replied 1 year ago.
Hi Dean,
Let me switch to Q&A mode...
I posted the answer below.
Please be sure to ask for clarification if needed.

Hi and welcome to Just Answer!
Because the property is NOT located in Canada and sellers are NOT Canadian residents - there is no withholding for Canadian tax purposes - but for US tax purposes only based on the location of the property.
General Rule is that the Foreign Investment in Real Property Tax Act (FIRPTA) requires a FIRPTA withholding tax of 10% of the amount realized on the disposition of all U.S. real property interests by a foreign person. A buyer of U.S. real property interest from a foreign investor is considered the (transferee) and also the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the buyer may be held liable for the tax.
The foreign person disposing of a U.S. real property interest may have the 10% withholding reduced if certain conditions are met and Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, is timely filed and accepted by the IRS.

LEV :

Reduced withholding certificates may be submitted under the following situations:
--The disposition of the U.S real property interest takes place under one of the non-recognition provisions of the Internal Revenue Code.
--When the transferor’s maximum tax liability on the disposition is less than the amount otherwise required to be withheld.
--The transferor or transferee wants to come under certain installment sale rules.
--The transferor or transferee enters into an agreement with the IRS by posting a type of security (letter of credit, bond, etc.).
--The transferor or transferee may enter into a 12 month agreement with the service to obtain a “blanket withholding certificate” for multiple properties.
--A nonstandard application may be submitted for unique situations that do not fit into the above categories.

 

Customer: replied 1 year ago.

Lev

Note: Seller is Canadian resident in Ontario

Property is in Florida, USA

Buyer is Mexican

 

Does this not change your answer?

Dean

 


11:00 P.M.

Anxious to receive your reply. Do you need more inmation?

Must retire now. Will check email tomorrow afternoon.

Wish to receive your reply and give you an OK rate.

Dean

Expert:  Lev replied 1 year ago.
Because the property is located in the US - the gain - if any - realized from the sale will be subject of US income taxes and US withholding rules.
Withholding is made from the payment due to the seller.
Withholding is NOT the tax liability. The purpose of withholding - to cover possible tax liability. To determine the tax liability - the seller will need to file his/her tax return and calculate the tax liability. If the actual tax liability is less that withholding - the seller will claim a refund.
The tax liability is based on the gain realized from the sale.
The gain = (selling price) - (basis - mainly that is the original purchase price plus improvements) - (selling expenses)
If the buyer is from Mexico or from any other place would not affect the tax liability or withholding requirements of the seller..
Let me know if you need any help.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22653
Experience: Taxes, Immigration, Labor Relations
Lev and 4 other Tax Specialists are ready to help you

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