La Quinta, CA
(760) 895-3516

Thursday, May 14, 2015

Non Resident Selling Real Estate in These States? There WILL be withholding tax


Selling real estate as a non resident triggers withholding tax on a federal level of 10% if no withholding certificate is applied for. There are also some states that withhold income tax from non resident aliens (Canadians who own property in the United States but do not meet substantial presence test or closer connections test).

Selling property is different than renting property. On the federal level, income from real estate rentals owned by foreign non resident aliens can have income tax withheld at 30%, though most foreign landlords subject to this withholding tax on the federal level are exempt because they choose to be taxed as a business effectively connected to the U.S.

If you were to sell a piece of real estate in the United States as a non-resident, these are the states that would withhold income taxes. The tax rates will be given by state that will withhold the tax.

California = 3.33%

The state of California withholds 3.33% from non resident property sellers. This includes U.S. Citizens and U.S. residents that live in other states.

1031 Exchanges in California

If you are doing a 1031 exchange in California, you should submit form 593-C Real Estate Withholding Exemption Certificate for Individual Sellers and certify that the sale of your property is a part of a 1031 exchange.

Non Resident Sellers Seeking Withholding Exemption in California

If you will not be making a profit on the sale of your U.S. real estate, or are filing for an exemption for any reason, you should submit form 593-C, or 593-W Withholding Exemption Certificate and Waiver Request for Non-Individual Sellers if you are selling your property through a corporation.

Colorado = 2%

The state of Colorado withholds 2% of the sales price. The sales price must be over $100,000. No income tax is withheld from non resident sellers of Colorado real estate if the sales price is under $100,000.

1031 Exchange in Colorado

If you are selling your property as a part of a 1031 exchange, you must sign an Affirmation of No Reasonably Estimated Tax to be Due" as per Colorado DOR DR 1083. The same is true for non residents who are selling the property seeking a withholding tax exemption in Colorado.

Georgia = 3%

Georgia state withholding tax on real estate sold by non residents is 3% of the sales price of any property over $20,000. Georgia state withholding tax is similar to California, only slightly lower.

1031 Exchange and Withholding Exemption in Georgia State

Non resident sellers selling property in Georgia doing a 1031 real estate exchange in Georgia are exempt from withholding tax and will have to submit form IT-AFF3. If the seller is not purchasing property in Georgia, they cannot seek exemption from the state withholding tax.

Hawaii = 5%

The state income tax withheld on real estate sold by non residents is 5% of the sales price regardless of price amount.

1031 Exchange and Withholding Exemption in Hawaii

As a seller who is not a resident of Hawaii, you will need to submit form N-289 and state that you are not required to recognize a gain because the sale is a part of a 1031 exchange, or because there is no gain from the sale of the property.

Maine = 2.5%

2.5% is the amount withheld from the sales price for non resident sellers in the state of Maine. The state of Maine has a threshold of $50,000 for the withholding tax to apply.

1031 Exchange and Withholding Exemption in Maine

As a non resident selling real estate, you must submit form REW-5 at least 2 weeks prior to the closing date. This Request for Exemption or Reduction in Withholding of Maine Income Tax on the Disposition of Maine Real Property will be used as well for 1031 exchanges, much like the case in most other states.

 Maryland =  4.75%

If you are a non resident selling real estate in Maryland, you are subject to 4.75% of the total price withheld from the sale. If you are selling the property as a corporation or any non individual business structure, you will be subject to a 7% state withholding tax.

1031 Exchange and Withholding Exemption in Maryland

 You must fill out and submit form MW506AE to the Maryland Comptroller's office in the case that there will not be a capital gain. The handler of the transfer will need to send a letter as well, certifying the amount of net gain/loss in your case.

Mississippi = 5%

If you choose to sell your prestigious retirement real estate in the state of Mississippi and don't live there, the state withholding tax will be 5%. The threshold is $100,000 for real property sold in Mississipi.

1031 Exchange and Withholding Exemption in Mississipi

 If the seller is preforming a 1031 exchange or there will be no net gain from the sale of the property in Mississippi State, the seller must submit an affidavit stating that there will be no gain recognized to the buyer.

New Jersey = 2%

If you are a non resident of the state of New Jersey and sell real estate, there will be a 2% income tax withheld that you will have to get back on the tax return. This is an exit tax.The buyer of your real estate must submit form C-9000 at least 10 days before the sale of the property. The division then forwards a notice of the amount to be withheld according to tax debts, delinquencies, etc. plus the 2%.

1031 Exchange and Withholding Exemption in New Jersey

You must send in a GT/REP-3 Seller Assurance to be exempt from withholding tax either because of a 1031 exchange or because there will be no net gain. Tax may still be withheld if there is prior tax due as explained above.

New York = 8.82%

Selling a real estate property as a non resident in the state of New York triggers one of the highest Income Tax Withholdings among the United States. The rate is 8.82%

1031 Exchange and Withholding Exemption in New York

 To file an exemption from this states withholding tax, you must fill out a form IT2663 and provide a brie summary of the exchange before closing.

North Carolina = 4%

The withholding income tax on the sale of a real property in North Carolina owned by a foreign non resident alien comes to 4% of the sales price.

1031 Exchange and Withholding Exemption in North Carolina

You must file a NC-1099NRS form with the DOR in North Carolina to apply for an exemption because of a 1031 exchange or no net gain.

Oregon = 4%

Oregon enforces a 4% withholding tax on those who do not call Oregon home when real estate is sold, unless 8% of the gain is smaller than 4% of the sales price. If the total net gain is less than 4% of the sales price AND less than 8% of the taxable gain, net proceeds distributed to the seller will be withheld.

1031 Exchange and Withholding Exemption in Oregon

 If the sale of the Oregon property is part of a 1031 exchange, withholding is waived (there is some fine print on that, do your own due diligence research). If you are applying for an exemption because there will be no net gain, file a form WC.

Rhode Island = 6%

The total withheld income tax on the sale of a real property in Rhode Island where the seller is not a Rhode Island resident is 6%. If the property being sold is owned by a corporation from another state or country, the withheld income tax is 9%.

1031 Exchange and Withholding Exemption in Rhode Island

The seller who is a non resident will need to fill out and submit form RI 71.3 Nonresident Election of Gain and Certificate of Withholding Due. This applies to 1031 exchanges and non residents who will not be making a profit on the sale of the real estate.

South Carolina = 7%

You will end up having 7% of the estimated gain being withheld from you if you are a non resident selling real estate in South Carolina. If you are a corporation selling real estate and are not located in the state of South Carolina, your withholding tax on the sale will be 5% of the estimated gain. Buyers will have to file form I-290 and estimate the sellers gain, based on the seller's affidavit.

1031 Exchange and Withholding Exemption in South Carolina

The seller is required to fill out form I-295 to apply for a withholding exemption in the state of South Carolina.

West Virginia = 2.5%

West Virginia imposes a 2.5% withholding tax on either the gain or the sales price. File a WV.NRAE no more than 21 days before the closing of the sale if you would like to apply for a reduction or exemption from the withholding tax.

 

Vermont = 2.5%


Vermont withholding tax from the total sales price of the property where the seller is a non resident alien to the state is 2.5%. The buyer of the property will submit a RE-171.



These are the Withholding income taxes imposed on Non Resident sellers of real estate. Most states offer reductions and exemptions that will have to be filed before the closing date. To have the state withheld income tax recovered or refunded to you as a non resident, you will need to file a tax return and in most cases, claim the state tax withheld as an estimated income tax payment.

If you need to have withheld tax recovered from the sale of a property in any of these states, or if you would like to recover federal income tax withholding on a property sold in the United States, call Borders Bookkeeping and Tax Preparation. We prepare taxes refunding the taxpayers for withheld income taxes on the sale of real estate by non residents.

(760) 895 3516