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taxmanrog
taxmanrog, CPA, MST, MA
Category: Capital Gains and Losses
Satisfied Customers: 493
Experience:  Licensed CPA with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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I'm a foreigner who buys a house in the US for more than ten

Customer Question

Hello, I'm a foreigner who buys a house in the US for more than ten years, My home is located in San Jose, California. I just sold my house at $800,000, but by the time closing, it state that there is 3 1/3% withholding to franchise tax board and 15%FIRPTA withholding to IRS, so the total is at $146,640. I heard from my agent that I could make a form to ask them to refund it to me entirely? Is that true? If that so, how do I do this? I intend to buy a new house with the money I got. Please advise me.
Submitted: 1 month ago.
Category: Capital Gains and Losses
Expert:  taxmanrog replied 1 month ago.

Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

FIRPTA (Foreign Investment in Real Property Tax Act) is designed to make sure that foreign persons pay tax on the sale of US real property. Normally, foreign persons do not pay tax on capital gains. However, Congress passed laws (FIRPTA) to cause foreigners to pay tax on the disposition of US real property. This tax and the associated withholding are found under IRC §897.

The withholding tax is 15% of the gross proceeds. However, when you file your income tax return, you can get a refund of the part of the tax that is allocated to the cost basis. This will insure that you only pay tax on the actual gain (as opposed to the gross proceeds).

California's law is similar, and will result in a refund of the over paid tax once the tax return is filed.

Basically, this is a big stick to encourage foreigners who sell US real property to file tax returns. By overwitholding, they are forcing you to file in order to get your overpayment back. IF you don't file, they have extra tax revenue.

I hope this answers your questions! IF you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great week!

Roger

Customer: replied 1 month ago.
Hello Roger,
What about the 3 1/3% of the franchise tax board? Can I also to get refund on this? Can you estimate how much would I able to get it refund on the total of $146,640?
Expert:  taxmanrog replied 1 month ago.

The CA tax paid to the FTB can be refunded as well, or at least part of it.

I can't estimate your tax refund, as I don't know your cost basis, your status in the US (are you a resident alien? Do you file a Form 1040?) IF I have this information, I might be able to calculate it.

Roger

Customer: replied 1 month ago.
Hello Roger,My cost basis when I bought the house in 2004 was at $665,000, and now I am selling at $800,000. My status in the US is B1/B2 visa. What is form 1040? I didn't file any of this? In addition, can I send you my escrow estimation closing so that you will have a better idea?
Customer: replied 1 month ago.
Please let me know if you can get the estimate number.
Customer: replied 1 month ago.
hello Roger, Can you give me the estimate base on the information provided?
Expert:  taxmanrog replied 1 month ago.

I cannot. I need to know what you paid for the house, and what your tax status is. Once I know both of these I can give you an estimate.

Customer: replied 1 month ago.
hello Roger, my selling price is at $800,000. WIth respect to the tax status, I didn't file any tax form since ten years when I bought the house except for property tax on yearly. Can you help me?
Expert:  taxmanrog replied 1 month ago.

Do you live here in the US? If you do, and have for more than 183 days, you are considered a resident alien and are required to file tax returns.

What did you pay for the house? Was it your principal residence?

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