Sale Of US Real Estate

When you as a foreign person sell your investment or vacation property in the USA, generally you must pay a 10% tax on the Sale of US Real Estate. The tax is based on the selling price of the property. There are a few exceptions to this, such as when you sell the property for less than $300,000 and the buyer lives in the property as his residence for at least 50% of the days in the year. The amount of tax withheld on the Sale of US Real Estate can also be reduced if you file a document called a "Withholding Certificate" with the IRS. This document would show to the IRS that the actual profit and tax owing is less than the 10% of the selling price. Your withholding agent, normally called a Title Agent or the lawyer handling the closing of the sale, will put the 10% tax in escrow, until the IRS send a letter back approving the reduction in tax.

After the withholding agent gets permission from the IRS the agent will release to you a portion or all of the withholding tax and only forward to the IRS the amount of tax required. If you, the foreign seller have an ITIN number (an Individual Taxpayer Identification Number – issued by the IRS) in place before the sale of property, then this procedure is not a problem as long as you have a withholding agent that is knowledgeable about Withholding Certificates and will work with you. If you do not have this ITIN number when you find a buyer, then the logistics of getting the required number in time to prepare the Withholding Certificate is usually impractical. To get the tax number you need the contract of sale and a copy of the buyers' tax forms that they submitted to the IRS. Since you are applying for a reduction in tax withheld, the tax forms will be delayed until the IRS approves the actual tax. This is a "catch 22" situation and is compounded by the fact that not all Title Agents will understand this procedure and for all practical purposes these complications prevent the filing of the Withholding Certificate.

So if you have a knowledgeable Title Agent and both the buyer and seller have US tax numbers then proceed with a Withholding Certificate if the tax on the actual profit is less than the 10% of the selling price of the Sale of US Real Estate. If you do not have a knowledgeable Title Agent or do not have a US tax number then have the Title agent deduct the 10% withholding tax and apply for a US ITIN number. Once you have the US tax number then the Title Agent can prepare the required tax forms and remit the tax to the IRS. Once again you have to apply for this number at the earliest time that you have a contract of sale so that the Title Agent has the number in time to remit the tax and tax forms to the IRS, since there is a time limit on this.

Care must be taken to apply for the number correctly, as any delay will force the Title Agent to remit the tax without a corresponding tax number. This is a problem, since when you file your US tax return to get a refund on the overpayment of withholding tax on the Sale of US Real Estate, the IRS will have trouble matching the Title Agents remittance of your tax, since there is no tax number associated with the tax remitted.

We are experienced in both getting you a US tax number and in filing either a US Withholding Certificate or a US tax return to get the correct amount of tax refunded to you on the Sale of US Real Estate. We can help you do this correctly so that your tax refund is not held up any longer than is absolutely necessary.

Below you will find a list of the type of services we provide.