Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f270.sbe

Text File | 1997-01-01 | 7KB | 164 lines

@049 CHAP 4

        ┌───────────────────────────────────────────────┐
        │INVESTORS IN U.S. REAL ESTATE:  TAX WITHHOLDING│
        │REQUIREMENTS IF BUYING FROM NONRESIDENT 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 property)
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
person," 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
transaction, that the seller provide you with an affidavit
certifying that the seller is not a nonresident alien or a
foreign 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
If you acquire VERMONT real estate from a nonresident,
except in certain foreclosure transactions, you must withhold
Vermont state income tax equal to 2.5% of the consideration
paid for the property and remit the withheld tax to the
Vermont Department of Taxes within 30 days, or YOU will be
liable for the tax you failed to withhold.

To protect yourself from such state tax liability, you need
to obtain one of the following certificates:

   .  A certificate by the seller stating, under penalty
      of perjury, that he or she is a Vermont resident; or

   .  A certificate from the Vermont Tax Commissioner
      stating that no tax is due from gain on the transfer,
      or that the seller's tax liability on the transaction
      has been satisfied or adequately secured already.

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 seller,
you (as buyer) are liable if you fail to withhold tax, equal
to 10% of the total consideration paid, from the purchase
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.

Note that on a given transaction, it is possible that you
could be required to withhold BOTH state income tax (at a
2.5% rate) and Land Gains Tax (at a 10% rate) from the
amount you pay over to the seller.

@CODE:EN
@CODE: CA
WITHHOLDING FROM FOREIGN BUYERS.  California has also
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
person.  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, 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, is generally 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 to this withholding requirement are allowed
where the sales price does not exceed $100,000, or where
the seller received 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 nonresident
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 transferee)
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 following
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
          residence and the amount realized did not exceed
          $300,000.

@CODE:EN
@CODE: CO

Colorado enacted legislation (Colo. Rev. Stat. Section
39-22-604.5) in 1992, effective on 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 corporation 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