|
Information provided on this site is for general
guidance only and is often simplified. Actual
IRS procedures are complex, and taxpayers should
obtain professional assistance or use IRS sources
for complete information.
Gains
From US Property Investment
The
disposition of a US real property interest by
a foreign person (the transferor) is subject to
income tax withholding. A transferee who fails
to withhold may be held liable for the tax.
A foreign person is a non-resident alien individual,
a foreign corporation that has not made an election
under section 897(i) of the Internal Revenue Code
to be treated as a domestic corporation, foreign
partnership, foreign trust, or foreign estate.
It does not include a resident alien individual.
A transferor is any foreign person that disposes
of a US real property interest by sale, exchange,
gift, or any other transfer. The
owner of a disregarded entity is treated as the
transferor of the property, not the entity.
A
US real property interest is an interest, other
than as a creditor, in real property (including
an interest in a mine, well, or other natural
deposit) located in the United States or the Virgin
Islands, as well as certain personal property
that is associated with the use of real property
(such as farming machinery). It also means any
interest, other than as a creditor, in any domestic
corporation unless it is established that the
corporation was at no time a US real property
holding corporation during the shorter of the
period during which the interest was held, or
the 5-year period ending on the date of disposition.
If on the date of disposition, the corporation
did not hold any US real property interests, and
all the interests held at any time during the
shorter of the applicable periods were disposed
of in transactions in which the full amount of
any gain was recognized, then an interest in the
corporation is not a US real property interest.
The transferee must deduct and withhold a tax
equal to 10% (or other amount) of the total amount
realized by the foreign person on the disposition
(for example, 10% of the purchase price).
Exceptions
to the requirement to withhold include the following:
- The
transferee acquired the property for use as
a home and the amount realized (sales price)
is not more than $300,000 (at the time of writing).
The transferee or a member of their family must
have definite plans to reside at the property
for at least 50% of the number of days the property
is used by any person during each of the first
two 12-month periods following the date of transfer.
-
The property disposed of (other than certain
dispositions of non-publicly traded interests)
is an interest in a domestic corporation if
any class of stock of the corporation is regularly
traded on an established securities market.
However, if the class of stock had been held
by a foreign person who beneficially owned more
than 5% of the fair market value of that class
at any time during the previous 5-year period,
then that interest is a US real property interest
if the corporation qualifies as a United States
Real Property Holding Corporation (USRPHC).
-
The disposition is of an interest in a domestic
corporation and that corporation furnishes a
certification stating, under penalties of perjury,
that the interest is not a US real property
interest.
-
The transferor provides certification stating,
under penalties of perjury, that the transferor
is not a foreign person and containing the transferor's
name, US taxpayer identification number, and
home address (or office address, in the case
of an entity).
-
The transferor provides a written notice that
no recognition of any gain or loss on the transfer
is required because of a non-recognition provision
in the Internal Revenue Code or a provision
in a US tax treaty. The transferee must file
a copy of the notice by the 20th day after the
date of transfer with the Internal Revenue Service
Center.
BACK
TO TOP
|
