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Hello and thank you for using Just Answer,Sale of real estate by a foreign person (non resident alien of the US) would be 30% withholding rate. Any US sourced real property is subject to withholding. This would include an individual or a company.Capital gains rates are set for Nonresident aliens. IRC section 871(a)(2) imposes a flat tax of 30 percent on U.S. source capital gains in the hands of nonresident alien individuals physically present in the United States for 183 days or more during the taxable year.
The withholding is on the sales price so if the non US person or entity has a lower gain they could file a US tax return, show the true gain and request refund of any amount that was withheld but more than the true tax.
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Hi Robin, thanks a lot for your prompt response. I need some clarification on your response however, so in the following example:
I bought a house for $100,000.
I sell it for $150,000
a) Following your explanation, there is 30% withholding tax applicable for NRAs on the full $150,000.
b) In addition, Capital Gains of 30% of $50,000 is also applicable ONLY IF I have been physically present in the US for 183 days or more during the tax year.
1. So if I am not physically present in the US for 183 days or more, then only (a) will apply?
2. If I buy through an offshore company, then am I right in assuming that only (a) will apply since it is an offshore company?
3. Who is responsible for withholding both (a) and (b) when I sell my house? The escrow agent?
I bought the house for $100,000
I sold it for $50,000
(a) The 30% withholding on $50,000 would still be applicable?
(b) There would be no capital gains tax even if I had been present for 183 days or more since there was a realised loss on the asset?
(c) In accordance to your second response, would I be eligible for any refund due to the loss, and is so, how would the refund be calculated?
Thanks and regards
Hi Robin thanks so much for that. I understand the scenario where the true gain is $50,000.
In my second example where I bought at $100,000 and sold at $50,000, am I correct that even if I file a NR tax return (assuming I was not present for more 183 days or more), then I will still be liable for withholding on the entire sale price of $50,000. But if I were present for 183 days or more (ie no longer classified as Non-Resident for tax purposes), then I can file for a refund due to a capital loss?
Robin, thank you so much, it is very clear to me now. Wish it were easier but I am learning as I go along. Very grateful for your help and will rate and finish this conversation immediately.
Hi Robin, sorry to re-start this conversation but I was just told in conversation with a friend's friend that under the FIRPTA, the withholding tax rate on the disposal of real assets by non residents is 10%. I am a little confused as you mentioned it was 30%, which is the standard rate for interest or income for non-residents.
Do you have anyway to verify the information?
Hi Robin, thanks for clarifying. I am a resident in both Singapore and Hong Kong for tax purposes, but am pretty sure neither territory has no Double Tax Treaty with the United States. However it is good to know that it is 10% for real assets not 30%, and also I can at least report a loss if need be.