May
16

When Foreign Persons Sell

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In New York real estate sales there is one sure bet; you will pay taxes.  Whether you are a US tax payer or a foreign investor, the State of New York and the US Government will get their cut.

The question is when will you have to pay up?  The rules are a bit complicated, but one of our favorite legal bloggers, Jerry Feeney explains it like this:

For New York State: people who sell real estate in New York State, whether they are individuals, trusts, estates, or LLCs, must pay the tax at closing on the estimated gain as a condition of the sale, unless they are exempt from payment at closing.  Most transactions are exempt.  However, the exemption is only about the timing of the tax payment, not the obligation to make the payment.   Make no mistake; the seller is accountable to the taxing authority to account for the gains.

If you are a New York State resident, and/or the property being sold was the principal residence of the seller for 2 of the last 5 years, the exemption from paying at closing applies.

For example:  A seller who has owned a condo in New York City that is used as a second home, and is a New Jersey resident must fill out the applicable tax foand remit the tax payment on the estimated gain from the sale or they cannot close.  This is a very good reason to have a good accountant on retainer.

For United States Taxes, people who sell real estate in the United States must also certify at closing if they are exempt from the federal withholding requirement on real estate unless the sales price is $300,000 or less and the property is acquired for a primary residence.  If not, the seller must certify that they are exempt from withholding.  Face it, most New York City real estate is over $300,000.  There are 2 ways the seller could be exempt; if they are U. S. citizens, or resident aliens.  Others are ‘foreign persons’ under the statue and must withhold 10% of the purchase price unless they have obtained a withholding certificate from the IRS approving a smaller withholding.  These certificates can take up to 90 days to obtain, sometimes more, so be sure your attorney starts the process early to ensure a smooth closing.

For Example:  A Canadian citizen who does not have any immigration status in the U.S., and who sells an investment property would be required to have 10% withheld at closing, which must be remitted to the U.S. Treasury.  This seller would then need to file a U.S. Tax return for the year that the property was sold, regardless of whether they have any other U.S. income.

It is vitally important that your team include a qualified attorney and accountant to help you navigate these treacherous and complicated waters.

Based on article by Jerry M. Feeney,  Esq., Residential Real Estate Attorney.

This post is provided as informational proposes only and should not be construed as legal, accounting or tax advice by the RealEstateGeezer. You should seek advice from a qualified professional.

 

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