@049 CHAP 4 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � FOREIGN INVESTORS IN U.S. REAL ESTATE: � � TAX WITHHOLDING REQUIREMENTS FOR SELLERS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� 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. 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� 쿝EMEMBER: WHEN BUYING REAL ESTATE, IF THE SELLER� 쿔S A NONRESIDENT ALIEN, YOU WILL OWE THE IRS 10% OF� 쿟HE PURCHASE PRICE IF YOU FAIL TO WITHHOLD THE TAX,� 쿢NLESS YOU RECEIVED A "CERTIFICATE OF NON-FOREIGN� 쿞TATUS" AFFIDAVIT FROM THE SELLER!!! � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� @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