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Hi Robin, my questions are in relation to the sale of real

estate on the island by...
Hi Robin, my questions are in relation to the sale of real estate on the island by a foreigner. My questions are in relation to both HARPTA and FIRPTA as I have read government sites and am still not clear:

1. What is the Capital Gains Tax rate applicable if I sell the property as (a) a foreign individual, or (b) an offshore company (if I buy under an offshore co)?

2. Is CGT rate flat regardless of how long you hold the house or does it reduce over time? If so, how long? Many thanks
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Answered in 16 minutes by:
8/30/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,869
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D. :

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.

Robin D. :

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.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,869
Experience: 15years with H & R Block. Divisional leader, Instructor
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Customer reply replied 4 years ago

Hi Robin, thanks a lot for your prompt response. I need some clarification on your response however, so in the following example:


 


Example 1.


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?



Example 2:


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


Kathy

Hi,
You are correct that there will be withholding on the entire sale price. Because the real property is in the US, that is why you are liable for Capital Gain on the actual gain (the $50,000 in your example).
The US nonresident return would be filed to show the true gain and receive credit for the withholding (which is completed by the buyer or the lawyer at closing).

The 183 days only applies to capital gains on items that are not real property. US situs real property is always US sourced and the time in the US does not make a difference except for the 30% tax. If not in the US for 183 days or more then the 30% on capital gains stays because then the seller is not a resident alien. If the seller is a resident alien then they are allowed to use the lower rates that depend on how long the real property was held and how much their total income is.

If you bought for $100,000 and sell for $150,000 then withholding is on $150,000. NR US tax return is filed and the true gain is shown ($50,000) tax on $50,000 is at 30% (because not a resident) and the extra withheld is refunded.
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Customer reply replied 4 years ago

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?


 


Thanks and regards


Kathy

Hi,
If you sale for a loss you file the NR return and request the refund due to the loss on the sale. The withholding is based on the sale price and not your loss so even if you have a gain or a loss you file as a nonresident (NR return) and claim your withholding and request refund on either scenario (gain or loss).
I know it seems like the US would do this a simpler way especially if you can show at sale that this is a loss but.............. they do not.

If you were a resident the only thing that changes is the withholding requirement. There would not be any and you would just show your sale when you filed the resident US return. Gain is taxed and loss is used against other income and gains.
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Customer reply replied 4 years ago

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.

I am glad you understand and appreciate your use of Just Answer.
I really enjoyed working with you – please feel free to request me again when you come back to ask another question.
You will find the request feature when you come back under your MY QUESTIONS section.

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Customer reply replied 4 years ago

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,
Thanks for coming back. The question was closed to me so I could not correct my %. The rate is 10% for real property. Everything else I explained is correct but I misspoke on the %.
The transferee must deduct and withhold a tax equal to 10% of the total amount realized by the foreign person on the disposition (for example, 10% of the purchase price).
You would still be allowed to report the loss as I explained if you sell for less than your purchase price.

You can receive relief from the 10% withholding if there is a treaty article between the US and your country that says no withholding if there is a loss.
You would need to give the closer a written notice that no recognition of any gain or loss on the transfer is required because of a nonrecognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty. They would need to file a copy of the notice by the 20th day after the date of transfer with the Ogden Service Center, P.O. Box 409101, Ogden, UT 84409.
You did not mention your country but if you tell me I would be more than happy to check on any treaty provision for that.
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Customer reply replied 4 years ago

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.


 


Thanks again


Kathy

Hi,
Yes you are correct, neither Hong Kong nor Singapore have a tax treaty with the US.
Thanks again.
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