Learn the tax implications of non-residents selling U.S. real estate

If you are a non-resident alien who sells US real estate, you may have to pay U.S. tax on the gain from the sale.

A foreign person who disposes of a US real property interest is subject to tax withholding under the Foreign Investment in Real Property Tax Act (FIRPTA). The buyer is generally required to withhold 15% of the amount realized by the foreign person and remit it to the IRS. However, there are some exceptions and exemptions that may apply depending on your situation.

FIRPTA withholding is not a final tax, but a prepayment of the income tax liability of the foreign person on the gain from the sale of the U.S. real property interest. The foreign person must file a U.S. income tax return for the year of the sale and report the gain or loss from the disposition. The FIRPTA withholding paid will be credited against the income tax due or refunded if there is an excess. The seller must attach a stamped copy of Form 8288-A to the U.S. tax return.

If you are a foreign person who sold a U.S. real property interest, you may be eligible for a refund of excess FIRPTA tax withholding. The steps involved in the refund process are:

• Apply for an IRS individual tax identification number (“ITIN”) if you do not have one.
• Request a stamped copy of Form 8288-A from the IRS if the IRS did not automatically issue it.
• File a U.S. tax return claiming the tax refund.

Unbordered can assist you in completing each of these steps.

While theoretically the FIRPTA withholding tax may be reduced or eliminated by obtaining a withholding certificate from the IRS using form 8288-B before or after the transaction, we have generally found the method described above to be more effective and to result in lower professional fees. Therefore, we do not prepare Form 8288-B on behalf of sellers.