General Withholding Rules on Foreign Seller Sales

General Rule for IRS

The IRS requires the escrow co. must withhold 15% of the sales price on the sale of United States real property interests by foreign persons (on sales above $1,000,000), and either 15% or 10% on sales between $300,001 and $1,000,0000, and either 15% or $0 for sales of $300,000 and under. The lower withholding amount at both levels requires the buyer to purchase the property with the intent to use it as a residence.

GROSS SALES PRICE

Buyer Intends To Use

Property as a Residence?

YES

No

$300,000 and Under

$0

15%

$300,001- $1,000,000

10%

15%

Over $1,000,000

15%

15%

What Does the Buyer Acquires the Property for Use as a Residence Mean? It does not mean the buyer must certify he or she will use the acquired property as a primary residence. The buyer is acquiring the property for use as a residence if on the date of the transfer the buyer (or the buyers family) has definite plans to reside at the property for at least 50 percent of the number of days that the property is used by any person during each of the first two 12-month periods following the date of the transfer. The number of days that the property will be vacant is not taken into account in determining the number of days such property is used by any person. So this in an intent test as of the date of closing – the buyer is being asked to forecast his or her planned use for the acquired property for the next two years.

General Rule for FTB

California requires withholding of 3.3% of the sales price (or 12.3%of the gain optional rate, or 0 withholding in a loss sale, but the 0 withholding in a loss sale is only available if the IRS has issued the foreign seller an individual taxpayer ID number (“ITIN”) by the closing date, otherwise seller is stuck with 3.3% x sales price.) California requires withholding on: all individuals (even California residents); non-California partnerships; non-California corporations; most trusts; estates.

Information Provided by:

Michael W. Brooks, Esq.

DIRECTS

Domestic and International Real Estate Closing Tax Services

local: (760) 346-6140 • cell: (760) 898-3413 (844) 260-6140 Toll-FREE In US and Canada

e-mail: info@directsllp.com www.directsllp.com

 
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