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Video instructions and help with filling out and completing Are Form 843 Withholding

Instructions and Help about Are Form 843 Withholding

Welcome to video 5 in the series what does ferp the refunds do my name is Richard Kahn director and one of the experts here at the firm this video is comparing FERPA withholding to IRS tax huge difference available in our video section online at FERPA refunds com some foreign sellers think FERPA is a non-refundable flat 15% tax and do not file for refund they have three years to do so after a closing or disbursement before the statute of limitations runs out and the IRS can keep their money where they're withholding forever the 15% withholding is big money as we'll we'll see this is because the ferp that withholding is on the whole pie so to speak the full sale or disbursement amount on the other hand the actual IRS tax is only on the capital gains portion slice so to speak let's take a look at some examples here example one illustrates an exemption from withholding and tax completely it's a residential property purchased for personal use by a buyer who will occupy it at least 50% of the time each year for the next two years after closing it fits into the $300,000 or below properties and usage range example 2 is a residential use buyer occupancy scenario like the last example but here we see that the sale price is above the $300,000 minimum threshold and below the $1,000,000 maximum for this exception that ferp the withholding rate would be 10% in that range instead of the normal 15% so the property cost 400,000 it sold for 700,000 which is within the exception range commissions and improvements added 50,000 to the basis so it's 450 the profit is now 250 sold to a buyer who will occupy it full-time so the further exception of 10% stands the 10% on the 700 thousand sales price is 70,000 the IRS 30% capital gains tax on the profit the 250k is 75,000 here the seller owes the IRS an additional 5,000 this is an example why the path Act of 2022 raised the overall FERPA withholding to 15% although maintaining the 10% personal use exemption on 300,000 to $1,000,000 buyer using the property residences example 3 is the same under $1,000,000 scenario as the previous example but because it is not a buyer in a residential property that's going to use it there are no exceptions to the 15% for up the withholding because of this it wouldn't matter if the property or disbursement was 1 million dollars or less than 1 million dollars it's the 15% withholding so here the property cost 800,000 they sold it for a million commissions and improvements added 100,000 to the basis so then it make the basis 900,000 the profits 100,000 the FERC the withholding on the sale price is 150,000 and the capital gains on the slice of the $100,000 profit is 30,000 so in this case the seller is due a refund from the IRS of 120,000 minus any costs associated example 4 illustrates what a sale of a property over 1 million with no exceptions looks like it's a 15% FERPA withholding the sale price could be a million 2 million 10 million 100 million or more this is the withholding and taxon area so here the example is it cost of 1.5 million they sold it for 2 million the Commission's and improvements or 150,000 which raised the cost basis from 1.5 million to 1.6 5 million the profit therefore is 350,000 the ferp to 15% with holdings on the sale price of 2 million that's 300,000 the IRS 30% capital gains tax on the slice of profit 350,000 is a hundred and five thousand in this case the sellers do a refund from the IRS of a hundred ninety five thousand - any costs associated example five is a typical foreign investor shareholder case here we have a foreign investor shareholder that owns 50% of a u.s. real property holding corporation stock whose sole asset is in this case a ten million dollar commercial property again the same formula would apply whether the property is two million or ten million a hundred million all the way to a size the property sale could go the property cost 10 million the foreign sellers are 50% shareholder so their cost basis is 5 million it sold for 15 million commissions and improvements for 1.5 million which therefore adds to the 10 million so you have an 11.5 million adjusted cost basis the profit is now 3.5 million the foreign shareholders adjusted course basis is 50% of the 11.5 million or five point seven five million the FERC the 15% withholding is on 50% of the sale price of 15 million which is 7.5 million and 15% of that is 1 million 125 thousand the IRS 30% capital gains tax on the gain portion slice of the investors 50% is 1.75 million that's half of the total profit of 3.5 million and the 30 percent capital gains tax on that is five hundred twenty-five thousand so here the sellers through a refund from the IRS of six hundred thousand minus minus any costs associated example six is a typical foreign owner developer deal that buy property improves it and sells a shareholder interest at a profit here we have the cost of a two million dollar property it was an agricultural piece of land a lot of land the foreign seller when the land became more valuable because the development around it decided to exchange it for a smaller commercial piece of land of equal value that qualified as the same real estate for real estate exchange under the 1031 rules so there was no tax the foreign owner erected a shopping center which cost two million dollars so the adjusted cost basis is the two million cost the two million additional property cost four million is foreign seller sells fifty percent interest for three million.

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