Selling American Property
Whether you purchased your home in the US as an investment or because you were moving abroad, or perhaps you inherited some real estate from an uncle or aunt in the States, selling any type of property in the United States has tax implications. In particular, American expats often have questions about FIRPTA Foreign Investment in Real Property Tax Act withholding and capital Selling American Propertygains tax when selling their U.S. property.
A withholding tax of 15% of the sale price must be collected by either the buyer or the agent during a real estate transaction between an American citizen and a non-citizen. This is done to ensure that the seller will comply with U.S. tax law when filing their income taxes. This is a requirement under the Foreign Investment in Real Property Tax Act of 1984. It is possible to have the withholding amount reduced by showing an affidavit that the purchaser intends to use the property as a primary residence for at least 50% of the time during the two years following the purchase. The withholding tax is also reduced if the seller was a nonresident alien at any time during the preceding five years.
Generally, Americans who own real estate in the United States must pay capital gains tax on the profit when they sell it. This is a tax on the difference between the sale price and the original purchase price plus any capital improvements made on the property. The capital gain is then reported on the taxpayer’s annual tax return. In some cases, it is necessary to file an additional form called a Schedule D in addition to the ordinary income tax return when a capital gain is realized.
Many Americans who have purchased property in the United States as an investment have done so through a trust or corporation. These entities own the property on behalf of the American. Whenever an American expat sells their share of the corporation or trust, they must report the profits to the IRS. If they fail to report the proceeds of the sale, they could be subject to penalties and criminal prosecution.
In some instances, it is important to consider the impact of tax treaties on the sale of property. These treaties are agreements between countries that prevent double taxation on income earned in one country by residents of another. In some cases, a treaty may affect how much withholding tax is required during a sale of property.
If you have questions about the sale of a piece of property in the Selling American Property , you should work with an experienced international tax professional who can help ensure that you are compliant with all tax laws and that you receive the full benefit of your sale. Working with an expert can help you make sure that you do not overlook any documentation or calculation errors, which could lead to a costly tax liability. A tax professional can also provide guidance on structuring your sales transaction to minimize withholding tax obligations and maximize your net sale proceeds.