When a nonresident of the United States disposes of real estate, a withholding tax is imposed: 10 percent of the amount paid by the buyer. Warning! This requirement applies to far more than merely a garden-variety sale! And note also that “real estate” as defined for U.S. tax purposes includes far more than just dirt and buildings.
Buyers must withhold the tax (unless an exception applies) and remit the funds to the Internal Revenue Service. A buyer who fails to withhold tax may be personally liable to the Internal Revenue Service. That’s not so good — a buyer pays some or all of the seller’s tax liability! Buyers obviously should take great care when buying from a foreign seller.
There are a few situations in which the withholding tax is excused or reduced. Foreign sellers should examine these situations to see if one applies.
Here are the tax forms that apply to the U.S. withholding tax on disposition of U.S. real estate.
Buyer’s forms: Form 8288 — The buyer will withhold tax and send it to the Internal Revenue Service. This is the form that is used to report the withholding and remit the tax. The instructions are included with this form.
Form 8288-A — The buyer will fill this in and attach copies to Form 8288. See the instructions to Form 8288 for how this works.
Seller’s forms: Form 8288-B — The seller usually doesn’t want tax withheld. This is the form used to ask for reduced or eliminated Federal tax withholding.
If you enjoyed this post, make sure you subscribe to my RSS feed!
{ 0 comments… add one now }