When it comes to real estate transactions in the United States involving non-residents, a particularly misunderstood subject is the appropriate time to obtain an Individual Taxpayer Identification Number (ITIN). As a registered tax preparer and Certifying Acceptance Agent for the IRS, this article strives to clarify this crucial point in the American real estate industry.
The Role of an ITIN for the Buyer
To start, let’s talk about the ITIN for the buyer. Generally, you do NOT need an ITIN to purchase a residence in the United States, especially if you are buying from an American.
Exception: Buying from Another Non-Resident
However, an exception exists: if you are buying from another non-resident and your Title Agent does not accept the role of withholding agent. In clear terms, if the responsibility of withholding 15% of the sales price falls on you, you will need an ITIN. It is important to note that you will only be eligible to obtain an ITIN after the taxable event, i.e., after the closing.
Selling a U.S Property: The Taxable Event and ITIN
As a seller, selling a US property is always a taxable event. Therefore, unless you have an SSN, you will ultimately need an ITIN. The question is therefore not whether you will need it, but rather when and how to obtain it.
Misconceptions About Preemptively Obtaining an ITIN
Many professionals mistakenly believe that you should obtain an ITIN in preparation for the sale of your property. They claim that it will be necessary at the time of the sale and that its acquisition could avoid a withholding on the sale amount. However, this is incorrect.
The Taxable Event and FIRPTA Withholding
Like for the buyer, you will only become eligible for an ITIN when the taxable event occurs. Thus, if a FIRPTA withholding is applied at the time of the sale, you will receive a form 8288-A from the buyer or his representative attesting to this withholding. This form requires an ITIN. So, it is immediately after the closing, once you have this form in hand, that you become eligible to obtain an ITIN.
Scenario: Exemption from FIRPTA Withholding
If you sell your house and are exempt from FIRPTA withholding, the sale remains a taxable event. The capital gain must then be reported on a US income tax return in the year following the transaction date. In such a scenario, you will only obtain your ITIN when you file your tax return, not following the sale. Your ITIN application will simply be attached to your tax return.
Conclusion: Understanding ITIN in Non-Resident Transactions
In conclusion, there is no scenario where you can request an ITIN before the transaction itself, except in very specific cases of withholding certificate application. If a professional tells you that you absolutely must provide this number for the transaction to take place, know that they have misunderstood the sales process for a non-American.
