A Withholding Rule Could Affect Your Real Estate Transactions

Shirley Wu, CPA has tons of valuable experience with real estate transactions between an American and a foreign person:



Have you thought about buying American real estate property from a foreign person? Or maybe, you are a foreign person and considering selling U.S. real estate property. If so, it’s important that you know this: the transferee must withhold federal tax of 15% from the amount realized by the transferor. How do you avoid it? Are there any exceptions?

In general, IRS code section 1445 provides that any person who acquires a U.S. real estate property interest from a foreign person must withhold federal tax of 10% from the amount realized by the transferor foreign person. Whew, that’s a mouthful! In other words, if I buy property from you and you are foreign person, I (or the title agency) need to withhold a 10% tax from the amount you receive on the sale. This rule was amended in February, however, increasing the withholding from 10% to 15%.  There are some other significant changes also made under this amendment. In general, a transferee has a duty to withhold if both of the following are true:

  1. The transferor is a foreign person, AND
  2. The transferee is acquiring a U.S. real estate property interest

Be aware, your title company may not be able to close the title due to this revised rule.  How do you avoid this? CK can help! You may be eligible for exceptions to the withholding requirement.  Just give me a call. I can find out if you are eligible for any exceptions and then provide the necessary documentation to your Title Company and the IRS.  Keep in mind, by the 20th day after the date of the transfer, the transferee may need to mail a copy of the transferor’s notice to the IRS.  No need to worry, just contact me and I can help.