Under current federal law, if a foreign person sells US real property, the buyer is obligated to withhold 10% of the gross sales price and remit this to the IRS.
However, pursuant to the Protecting Americans from Tax Hikes Act of 2015, which became law on December 18, 2015 (the “PATH Act”), the required 10% withholding will increase to 15% for all closings occurring on or after February 16th, 2016, except those wherein the sales price is between $300,001 and $1,000,000 and the buyer acquires the property for use as a principal residence. Under this circumstance, a reduced withholding of 10% will apply.
Sales Price $300,000 or less and buyer acquires as principal residence
No Withholding
Sales Price between $300,001-$1,000,000 and buyer acquires as principal residence
10% Withholding
All transactions—Any Sales Price and buyer NOT acquiring as principal residence
15% Withholding
In short, if a foreign person is selling a US real property interest, the following parameters apply UNLESS THERE IS A STATORY EXCEPTION FROM WITHOLDING:
No withholding is required under the following circumstances:
• Buyer acquires for use a principal residence and sales price less than $300,000.
• Seller provides Non-Foreign Affidavit
• Seller provides a Withholding Certificate from the IRS which excuses the withholding
• The amount realized by the seller is zero
• The property is acquired by the United States or a political subdivision thereof
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