Is it possible for a non-US citizen to sell property in the US? The short answer is yes. The long answer? Well, that requires a little more explanation.
Selling real estate is never an easy ride, but when you aren’t a US resident, there are some extra layers of research that need to be done. To make sure you’re doing it properly, we want to give you a comprehensive guide and help you out.
We’re about to explain the taxes, documentation, and everything needed to sell your property if you’re not a US citizen. So, if you want to sell your house in the USA despite not having citizenship, here’s what to do.
Tax Ramifications of Selling US Property as a Non-Citizen
When talking about real estate sales, we cannot skip mentioning the tax implication. So, let us first explain capital gain taxes, answer the question ”what is FIRPTA?” and tell you if you can reduce your taxes.
Capital Gains Tax
If you’re not a US citizen, you will be subject to what’s called the Capital Gains Tax. This is a tax on the sale of assets that have increased in value, such as stocks, bonds, and, in this case, property.
The Capital Gains Tax is calculated as a percentage of the profit you’ve made on the sale. The rate you’ll pay depends on several factors, including how long you’ve owned the property and your tax bracket. While we’re on the subject, let’s see what FIRPTA is and how it applies here.
FIRPTA – Foreign Investment in Real Property Tax Act
FIRPTA is an acronym that stands for Foreign Investment in Real Property Tax Act, and it was established in 1980. This act requires all foreigners who sell US real estate to pay taxes on the profit they make from the sale. FIRPTA applies to any sale of US real property by a non-US citizen. This includes sales of both residential and commercial property, as well as land.
10% of the gross sale price of real estate sold by a US non-resident is automatically withheld for the IRS under the Foreign Investment Real Property Tax Act (FIRPTA). This is the case unless one of the few exceptions, such as the sales price being below $300,000, applies.
A nonresident’s final tax liability might, in some cases, be lower than the amount withheld under FIRPTA. When the nonresident files their tax return, any FIRPTA withholding that exceeds the nonresident’s final tax liability will be returned to the non-resident. But if you want to seek a reduced withholding amount, you can apply for a ”withholding certificate” by submitting Form 8288-B.
Reducing Taxes When Selling US Property as a Non-Citizen
In some cases, you may be able to reduce or even eliminate the taxes you owe on the sale of your US property. Here are some things to consider:
- Proving that you’re not selling the property for a profit. You may be exempt from paying sales taxes if you show that you’re selling the property for less than its fair market value. To do this, you’ll need to get a professional property appraisal.
- Using the ”main home exclusion”. This exclusion allows you to exclude a certain amount of profit from your capital gains tax. To qualify, you must have owned and used the property as your main home for at least two of the past five years. You can only exclude up to $250,000 in profit from the sale or $500,000 if you’re married and filing a joint tax return.
- Due to extenuating circumstances, you can still be eligible for a partial exclusion based on the time you did own and lived in the property, even if you don’t pass the Main Home Exclusion test. Extenuating situations include moving because of health concerns, work changes, or unforeseen events.
Documentation Needed When Selling US Property as a Non-Citizen
When you sell US property as a non-citizen, there is some additional documentation that you’ll need to provide.
- Obtain the Individual Taxpayer Identification Number (ITIN). This number is issued by the IRS, and it’s used for tax purposes. To get an ITIN, you’ll need to fill out Form W-7 and submit it along with your passport and other required documents.
- Get the Certification of Non-Foreign Status. To get this certification, you’ll need to fill out Form 8802 and submit it to the IRS.
- File a US non-resident income tax return using Form 1040NR. This is the form used by non-residents to report their US income. You’ll need to include your ITIN on this form.
- Provide the buyer with a copy of your passport and proof of residency. This can be done by providing a copy of your visa or green card.
- The buyer may also require additional documentation, such as a bank statement or proof of employment.
The good news is that you don’t have to do this on your own. There are tax professionals who specialize in filing taxes for non-residents, and they can help you with all the necessary paperwork.
Step-by-Step Guide: Selling a Property in the USA as a Non-Resident
Now that we’ve gone over the basics let’s take a look at the step-by-step process of selling US property as a non-citizen.
- Find a real estate agent familiar with the process of selling US property as a foreigner.
- Once you’ve found an agent, they will help you determine the fair market value of your property.
- Find a buyer for your property. In most cases, your real estate agent will be able to find a buyer who is willing to pay the asking price.
- Negotiate the sale. This is where your real estate agent will be able to help you out.
- Sign the purchase agreement.
- Obtain a Certificate of Non-Foreign Status.
- Obtain an Individual Taxpayer Identification Number (ITIN).
- Provide the buyer with a copy of your passport and proof of residency.
- Close on the sale of the property. This is where the deed to the property will be transferred to the buyer.
- Once the sale has been closed, you’ll need to file Form 1040-NR and pay any due taxes.
Don’t Be Afraid to Seek Assistance
Selling US property as a non-citizen doesn’t have to be complicated or stressful. Just make sure you’re well prepared and do your research. Remember, you can always work with a qualified tax professional to ensure everything is done correctly. Hiring a professional to help you out can be the best solution if you find yourself overwhelmed.