DP Tool Club 12/CD_ASCQ_12_0294.iso/vrac/sba93_4.zip/F270.SBE

Text File | 1993-07-01 | 6KB | 138 lines

@049 CHAP 4
        ┌───────────────────────────────────────────────┐
        │     FOREIGN INVESTORS IN U.S. REAL ESTATE:    │
        │    TAX WITHHOLDING REQUIREMENTS FOR SELLERS   │
        └───────────────────────────────────────────────┘

American citizens and other U.S. residents who acquire U.S.
real estate (including partnership interests or stock in
certain corporations where such firms own U.S. real prop-
erty) from non-resident foreigners must withhold part of
the purchase price (typically 10%) and remit it to the IRS
under the Foreign Investment in Real Property Tax Act
("FIRPTA").  Note that IF YOU FAIL TO WITHHOLD THE TAX,
YOU ARE LIABLE FOR IT!

This is a potentially dangerous tax trap for unsuspecting
U.S. citizens or resident aliens buying real estate, since
it is difficult to know whether a seller is a "foreign per-
son," particularly if the seller is a company.  While there
is an exception to the withholding rules for residences
costing $300,000 or less, if you will live in it for at
least 50% of the time for 2 years, it is wise to obtain a
"Certificate of Non-Foreign Status" from the seller if
there is any possibility that the seller is a non-resident
alien or a foreign company subject to the tax withholding
provisions of FIRPTA.

In order to protect yourself when purchasing real estate --
or your client, if you are in the real estate business --
you should require, as a condition of closing the transac-
tion, that the seller provide you with an affidavit certi-
fying that the seller is not a nonresident alien or a for-
eign company.  If you are the buyer, your real estate agent
or attorney who represents you in the transaction should be
able to provide you with the appropriate forms.

      ┌───────────────────────────────────────────────────┐
      │REMEMBER:   WHEN BUYING REAL ESTATE,  IF THE SELLER│
      │IS A NONRESIDENT ALIEN, YOU WILL OWE THE IRS 10% OF│
      │THE PURCHASE PRICE IF YOU FAIL TO WITHHOLD THE TAX,│
      │UNLESS YOU RECEIVED A  "CERTIFICATE OF  NON-FOREIGN│
      │STATUS" AFFIDAVIT FROM THE SELLER!!!               │
      └───────────────────────────────────────────────────┘

@CODE: VT
Also, if you buy land that is located in Vermont, you need
to be aware that the Vermont Land Gains Tax applies to most
land that has been held by ANY seller for less than 6 years
(with certain limited exemptions, such as for land used for
a personal residence).  While this tax applies to the sel-
ler, you (as buyer) are liable if you fail to withhold tax,
equal to 10% of the total consideration paid, from the pur-
chase price.  You must then immediately file the Vermont
Land Gains Withholding Tax Return (Form LG-1) and remit the
tax.  The seller is required to file Form LG-2 within 30
days after the sale or exchange and remit the balance of
the tax due, if any, with the LG-2.

@CODE:EN
@CODE: CA
WITHHOLDING FROM FOREIGN BUYERS.  California has recently
enacted a withholding requirement, similar to the federal
law, that requires a buyer to withhold part of the purchase
price upon sale of California real estate to a FOREIGN per-
son.  The amount of the tax to be withheld is 1/3 of the
federal tax that must be withheld.  It must be paid over to
the state FTB on Form 597 within 20 days, with a copy of
federal Form 8288 attached.

WITHHOLDING FROM NONRESIDENT BUYERS.  Similarly, since
January 1, 1991, the sale of any "California real property
interest" by a domestic (U.S.) person or corporation (but
not a partnership), that is not a California resident, has
generally been subject to California income tax withholding
at a rate equal to 3 1/3% of the SALES PRICE.  (Not the
amount of the gain!)  Exceptions are made where the sales
price does not exceed $100,000, or where the seller re-
ceived a homeowner's property tax exemption in the year
of sale on the property, or in certain other circumstances.


@CODE:EN
@CODE: SC
Also, if you buy realty in South Carolina from a nonresi-
dent person, you must withhold state tax equal to 7% (5% if
paid to a corporation) of the purchase price and generally
remit the tax by the 15th of the next month.

@CODE:EN
@CODE: HI
Hawaii legislation now requires that a buyer (or trans-
feree) of Hawaii real property from a nonresident to
withhold Hawaii income tax at a rate of 5% of the amount
realized by the seller, unless the seller is exempt from
recognizing gain or loss on the transfer.

Persons required to withhold the tax are required to make a
return of the amount withheld no more than 20 days follow-
ing the transaction.  In order to avoid having to withhold,
the buyer must receive from the seller an affidavit that
either:

      (a) the seller is a "resident person" (an individual
          Hawaii resident, a corporation incorporated in
          Hawaii, a partnership formed under Hawaii law,
          or a "resident trust" or "resident estate"), or,

      (b) is exempt from recognizing gain or loss on the
          transaction under the U.S. Internal Revenue Code;
          or

      (c) the property was the transferor's principal resi-
          dence and the amount realized did not exceed
          $300,000.

@CODE:EN
@CODE: CO

@STATE has enacted legislation (Colo. Rev. Stat. Section
39-22-604.5) in 1992, effective on an after January 1, 1993,
that requires income tax withholding of 2% of the sales
price (or of the net proceeds, if less) of Colorado realty.
The tax withheld is treated as an estimated tax payment on
behalf of the seller.  Withholding is generally required
on any real estate sale exceeding $100,000 where the seller
is a non-resident individual, estate or trust, or a corpor-
ation without a permanent place of business in the state.

There are various exceptions, such as where the property
is claimed to be the seller's principal residence, for
example.  Persons required to withhold must file state
Form DR1083 (information return) and a Form DR 1079 with
the tax payment, within 30 days after closing of the
transaction.

@CODE:EN