International Sale And Purchase Of Real Property

Dated: 09/16/2017

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International Sale And Purchase Of Real Property

According to the IRS, the transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor (seller) is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. This is a big introduction to international real estate.

Rates of Withholding

In a private party real property transaction, the title company or closing agent on behalf of the transferee must deduct and withhold the tax on the total amount realized by the foreign person on the disposition. The rate of withholding generally is 15% of the gross sale less direct purchase closing expenses incurred.

The actual tax to be paid is based on the amount realized which is the sum of:

  • The cash paid, or to be paid (principal only);

  • The fair market value of other property transferred, or to be transferred; and

  • The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.

If the property transferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transferors based on the capital contribution of each transferor.

A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.

A domestic corporation must withhold tax on the fair market value of the property distributed to a foreign shareholder if:

  • The shareholder's interest in the corporation is a U.S. real property interest, and

  • The property distributed is either in redemption of stock or in liquidation of the corporation.

For domestic corporation’s distributions, the rate is to 15%.

The foreign national who is benefiting from the transaction must have a tax payer identification number, ITIN. An ITIN number is associated with the money withheld by the IRS. An ITIN can be acquired by completing a W-7 form which the closing agent can supply and then submitting it to the IRS to assign the ITIN number.

The monies withheld for taxes and held by the IRS are being held until the foreign national files a US tax report using the ITIN number. The tax form filed with the IRS would then calculate the actual net profit on this transaction as well as any other income producing transaction. If there is a refund due then the balance will be refunded to the foreign national.

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Steve and Shirley Linahan

Working together as a husband/wife team is very exciting. We are able to use our individual skills as well as our combined experiences to advise our clients with their real estate needs. The key to ou....

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