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I’ve added Form 8288-B as a link in the navigation menu, under “IRS Website Links.” This will take you to a fill-in PDF form that you can use to reduce Federal withholding from the required 10 percent of gross sale price.
What Form 8288-B Does
The title of the form is “Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.”
Interpreted from bureaucrat-speak, this means that you, a non-citizen and non-resident of the United States, are selling a “U.S. Real Property Interest” and don’t want a lot of tax withheld. Therefore, you are applying for a certificate from the Internal Revenue Service that you can give to the buyer to reduce or eliminate the withholding tax.
(It is the buyer’s obligation to withhold the tax and send it to the IRS. The buyer goofs up? The buyer must pay the withholding tax out of his/her/its own pocket. This focuses the buyer’s interest in getting the withholding tax correct.)
The “certificate” is actually just a dreary, all-text, computer-generated letter, completely lacking in any aesthetic value. Not that I expect beauty from a government agency, but still, if you call it a certificate, let’s put a bit of effort into eye-appeal, shall we?
What will the withholding tax be reduced to?
Reduce the withholding tax to what? Generally, to whatever the tax liability would be on sale of the property. You’ll have to prove what you’d actually owe in capital gains tax and, at that point, you should get a certificate in the mail allowing the seller to reduce the withholding to that amount.
If you prove that you’re taking a loss on the sale, your required withholding will be zero.
Now. Whether you should apply for withholding reduction is another matter. Using the old cost/benefit analysis, I’d recommend to most people that they not bother. I frequently suggest that my nonresident clients simply file a tax return and get a refund.
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