Selling US Real Estate
Here is a quick overview of the process of selling US real estate.
1. You don't need a Social Security Number (SSN) to sell your property - The SSN is for people who live in the U.S. As someone from outside the U.S., you have a special number called ITIN (Individual Tax ID number). You will need this number for tax purposes and to get back some of the tax money you paid when you sell your condo. You can apply for this number once you have a deal to sell your condo.
2. Find someone who wants to buy your property - You can do this through a real estate sales agent. You and the buyer will agree on how much they will pay. This is called the Contract.
3. Decide when the sale will be final - This is when you give them the keys (and ownership), and they give you the money. This is known as the Closing Process. The Title Company usually handles this. They collect the money from the buyer and give it to you. If you hire me, they can put the money into my Attorney Trust Account and then I send it to you.
4. There's a tax you need to pay when you sell - This is like a security deposit (borgsom). When you, a non-U.S. person, sell a U.S. property, the U.S. Tax Law says the buyer must send a tax deposit to the U.S. government. This tax deposit comes out of the sales price. There are some special situations where you might not need to do this, and I can help you figure that out. There are forms to fill out for this tax, and I can help with those too.
5. After you sell, you can apply for an ITIN and ask for your tax deposit back - I can help with these steps too. You can apply for the ITIN at the same time as the Closing. You will need to file your taxes next year (by February) after you sell your property.
Do I need an ITIN before I can sell my US property?
You do not need to obtain an ITIN before selling your US real estate. Many ITIN applicants state that their CPA suggested they must do so before filing taxes or selling property. However, the IRS only issues an ITIN when you have filed a tax return or submitted a contract for the sale of US real estate.
FIRPTA - Real Estate Withholding Tax
The IRS requires buyers of US property from non-US persons to withhold 15 percent of the purchase price and submit it along with Form 8288. This ensures taxes are paid to the IRS as mandated by US law.
The 15 percent is calculated based on the purchase price, not the profit. Excess withholdings can be refunded by filing a tax return detailing the realized profit from the sale.
Refunds. The seller can apply for a refund of excess withholding when reporting the sale to the IRS the following year (filing a tax return on Form 1040-NR). Delays in receiving the refund from the IRS are common.
Reduced withholding. If the withholding amount is larger than the estimated tax on the transaction, it's possible to apply to the IRS before the closing date to reduce or eliminate the withholding tax.
Often people ask us for help with a US real estate sale because the Title Company or their real estate agent tells them they need an ITIN before closing. This is not correct and can create a needless delay in completing the sale. The IRS won't issue the ITIN without receiving a copy the contract, the closing statement and the FIRPTA forms.
Supporting Documents to Include with the ITIN Application
To apply for an ITIN, the seller needs to provide the IRS with:
- A copy of the real estate sales contract (signed and dated)
- The closing statement (also called a HUD statement) and
- IRS Form 8288 (withholding tax return) and Form 8288-A (statement of withholding) - completed and signed (the FIRPTA forms).
Form 8288 tells the IRS about the sale. Form 8288-A is a receipt that accompanies a check for the withholding tax. These forms can and should be filed with the IRS even if the seller does not have an ITIN yet.
The IRS processes the Form 8288-A by stamping it and sending it to the seller to attach to their US income tax return. Without a stamped Form from the IRS, they won't issue a refund.
You can find more information from the IRS International Series:
Reporting and Paying Tax on US Real Property Interests
Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests
Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests
Withholding too much tax?
The IRS withholding tax is calculated according to the gross sales price. The tax is calculated according to the capital gain, which reduces the gross sales price by the amount you paid for the property.
We can help you ask the IRS to reduce the amount of tax to be withheld if it exceeds the expected tax liability. The IRS is not quick or easy to work with on this point. Covid-19 related backlogs have caused delays of more than a year.
This is the application form:
- time-sensitive The application needs to be submitted on or before the closing date (when title changes to the buyer).
- historical research You should be prepared to show that all tax was paid when you originally bought the property. If you bought from a US citizen, you need evidence of their citizenship. If you bought from a non-US person, you need the FIRPTA forms.
Did you sell the property last year?
Then you need to file a tax return with your ITIN application. We can prepare the tax return for you.
You may be able to get a full or partial refund of the tax. We need the original purchase contract and closing statement to calculate the gain or loss. If you made improvements to the property, these may reduce the amount of gain on the sale.
Jointly-Owned Real Estate
All non-US sellers need their own ITINs and FIRPTA forms. A common mistake we see is either (a) failing to list one of the two non-US sellers on FIRPTA forms or (b) not apportioning the withholding tax figures on the forms according to the percent ownership interest. To process the refund, the IRS needs to issue a Form 8288-A for each seller.
For example, husband and wife, both non-US persons, sell their vacation home located in Florida. They both need ITINs and will report their portion of the sale by filing individual tax returns.
The IRS does not allow non-US persons who are married to file a joint tax return.
Corporate or LLC Sellers
A real estate sale by a US entity like an LLC is still subject to FIRPTA withholding tax.
To get started with us, please complete our ITIN worksheet HERE.