Increased withholding taxes on the sale of a US property, but a substantial refund may be available and you can apply online to receive it.
If a non US person purchases a second home or vacation property or other real property interest in the US, the sale of the property is generally subject to a withholding tax. On February 16, 2016, the FIRPTA withholding tax rate increased to 15% of the amount realized (generally the sales price) on the disposition of the real property by a nonresident of the United States. It is not based on the seller’s gain, and may be substantially more than the actual tax due.
There are two notable exceptions to the withholding tax on the sale of the US real property.
- If the foreign person transfers (by sale, exchange, gift, or any other disposition) a US real property interest to an INDIVIDUAL and realizes US$300,000 or less (in most cases the sales price) AND the property is acquired by the individual for use as a residence, then no sums need to be withheld or submitted. Please note there are important specific requirements regarding residential use by the individual acquiring the property.
- If the foreign person transfers a US real property interest and the amount realized is more than US$300,000 but does not exceed US$1,000,000 AND the property is acquired by the transferee for use as a residence, then the withholding tax rate is reduced to a withholding tax rate of 10%.
If the foreign person transfers a US real property interest and the amount realized exceeds US$1,000,000, then the withholding tax rate is increased to 15% of the amount realized regardless of the intended use of the property.
Please note that the buyer or other transferee of a US real property interest, and a corporation, qualified investment entity, or fiduciary that is required to withhold tax, must file form 8288 to report and transmit the amount withheld.
However, it is important to recognize that the actual tax due is NOT the withholding tax, and the withholding tax paid may be a substantial overpayment of the tax!
The actual tax due is a percentage of the gain and the difference between the amount withheld upon the sale of the property and the actual tax due may be substantial. As a tax attorney it become obvious that foreign persons had difficulty accessing their withholding tax refunds. Thus, our Company, Withholding Tax Refund Consultants, LLC, was recently formed to assist with efficiently and economically processing a refund for a withholding tax overpayment! If the seller submits the pertinent information regarding the sale in an online application located on our website, www.withholdingtaxrefunds.com, our Company can obtain the refund in a timely manner. We do not charge a fee if there is no refund. Please visit our website for further information at withholdingtaxrefunds.com. We specialize and focus on withholding tax refunds.
Very valuable and substantial tax refunds may be available for you!
About the author: Heidi Scholz is a US tax attorney at the Law Office of Heidi Scholz, P.A. She has practiced tax law for over 20 years and lectures widely on taxation. She also writes articles for a variety of organizations. She is a graduate of the University of California Berkeley and New York Law School. She is admitted to practice in New York and California.