作者：Michael W. Brooks （税务律师／DIRECTS 董事长）
Angela Li (DIRECTS 国际税务部经理)
作者：Michael W. Brooks （税务律师／DIRECTS 董事长）
Angela Li (DIRECTS 国际税务部经理)
By Michael W. Brooks, Esq.
At DIRECTS (Domestic and International Real Estate Closing Tax Services, Inc.), all day, every day, we work on tax matters relating to FIRPTA (the Foreign Investment in Real Property Tax Act). We work for clients from throughout the world who invest in real estate throughout the United States, but most of our clients own (or owned) real estate in California, and some of our clients are owed tax refunds from the IRS from real estate sales years which took place several years ago.
作者：Michael W. Brooks 律师 和 Angela Li
同美国公民一样，非美国公民和企业也同样适用于税法1031相同或类似资产交换(LIKE-KIND EXCHANGE)的条例。投资美国个人和商业房地产的外国投资者被允许延迟缴纳已经出售房产的增值部分的税，只需要投资者在出售房产后45天内选定一个新的“替代”房产并在出售房产后的180天内完成新房产的购买程序。例如：一位中国公民在Irvine(尔湾)购买了价值100万美金的房屋作为投资屋。3年后，尔湾房地产市场增值，有人出价150万美金要购买这位中国公民的房子。如果中国投资者直接出售房屋并没有做1031相同或类似资产交换(LIKE-KIND EXCHANGE)，投资者需要缴纳国税局大约6万美金的税(50万美金盈利减去大约10万美金房屋中介交易费等，剩下40万美金乘以15%的资本增值税率等于6万美金)。然而，如果我们的中国投资者在出售尔湾房产(“放弃房产”)后180天内在Newport Beach(新港海滩)购买另外一栋价值150万美金的房子(“替代房产”)，中国投资者可以通过进行税法1031相同或类似资产交换(LIKE-KIND EXCHANGE)立即避免向国税局缴纳6万美金的税。
但是外国投资者售房时15%(按照房屋售价计算)的外国人预扣税怎么办？产权过户公证公司必须上缴15%的预扣税因为中国投资者是外国公民？或者可以因为中国投资者准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)而自动免除外国人投资美国房地产税收法(FIRPTA)的15%预扣税的规定？答案是产权过户公证公司仍然必须上缴15%的预扣税，即使中国投资者准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)。一般来讲产权过户公证公司必须在房屋结束交易后20天内上缴15%的预扣税到国税局。在我们以上的例子中，出售尔湾房产时，产权过户公证公司必须扣押150万美金售价的15%也就是22万5千美金，正常程序是把这22万5千美金在房屋结束交易后20天内上缴到国税局。同时，我们准备进行1031相同或类似资产交换(LIKE-KIND EXCHANGE)的中国投资者必须在尔湾房子结束交易后的180天内完成价值150万美金新港海滩房屋的购买，投资者当然需要22万5千美金来完成购买。可是22万5千美金已经被缴纳到了国税局，并需要等到明年才能申请退回而因此来不及用于新港海滩房屋购买。所以中国投资者必须另外准备一笔22万5千美金用于购买新港海滩房屋，如果他有这笔多余现金的话。他也可以申请贷款。或者，也是最好的解决方案就是进行国税局8288-B预扣税快速退还申请，也是预扣税免进国税局的申请。
By Michael W. Brooks, Esq.
As discussed in Part 1, we know Foreign Investors are permitted to enter IRC Section 1031 (like-kind exchange) transactions provided certain conditions are met. The Foreign Investor can avoid (really delay) paying tax on the sale of the first property (the relinquished property), provided the Foreign Investor identifies a qualifying replacement property within 45 days of the sale and completes the purchase of the replacement property within 180 days of the sale. But what about the 15% (of the gross sales price) non-US seller withholding tax? Must the escrow company withhold 15% of the sales price because the seller is foreign (even though the foreign party is entering into a 1031 like-kind exchange)? The answer is yes- 15% of the gross sales price must still generally be withheld at the time of closing, and not distributed to the Foreign Investor or to the 1031 Accommodator. This is where 1031 transactions and the rules of FIRPTA (the Foreign Investment in Real Property Tax Act) intersect. The Foreign Investor entering into a like-kind exchange transaction has a big problem with respect to this 15% withholding tax requirement under FIRPTA. For IRC Section 1031 to work, the Foreign Investor must complete the purchase of the replacement property within six months, so he or she will need the 15% held by escrow back quickly, or he or she will blow the like-kind exchange and not be able to avoid the recognition of taxes on the sale relinquished property.
Consider the example below, where a Canadian couple needs their 15% back quickly, or they will owe tax on the sale of their first property.
Congress just enacted a significant change to the required withholding tax on sales of US real estate by non-US persons, effective on real estate sales closing on or after February 17, 2016. On December 18, 2015, Congress enacted the “Protecting Americans From Tax Hikes Act of 2015 (the “New Tax Law”).
Here’s all an escrow officer really needs to know about the New Tax Law…
What Was the Withholding Tax Law on Real Estate Sales By Non-US Persons (prior to the February
2016)? First, let’s review what the withholding tax law was (prior the February 2016 change). The withholding rule on real estate sales by non-US persons generally could be summarized as follows:
The buyer (or in California and many other states- the escrow company on behalf of the buyer) must withhold 10% of the gross sales price of the real estate, unless the sale was for $300,000 or less, and the buyer (who must be an individual for this exemption to be valid) acquires the property for use as a residence (in which case $0 withholding was required).
So notice under the prior version of the law, when it came to how much tax had to be withheld on real estate sales by non-US persons, there was generally one of two possible outcomes; either: (a) 10% of the gross sales price had to be withheld; or (b) $0 was to be withheld. 10% of the gross sales price or $0, those were the two possibilities. And notice what the requirements were to obtain the $0 treatment:
(i) that the sale had to be no more than $300,000 and (ii) the buyer had to acquire the property for use as a residence. We discuss in detail below the meaning of the condition the buyer acquiring the property for use as a residence, as that condition survives (and plays an even more meaningful role) under the New Tax Law.
What is the Revised Withholding Tax Requirement on Real Estate Sales By Non-US Persons Under the New Tax Law? Under the New Tax Law, effective for sales closing on February 17, 2016 or later, instead of two possible general outcomes for how much tax must be withheld on real estate sales by non-US persons, there now exists three possible outcomes. Perhaps the revised withholding tax rules under the
New Tax Law are best understood by reviewing the following summary table:
APPROPRIATE WITHHOLDING TAX RATE UNDER NEW TAX LAW
|Buyer Intends To Use Property as a Residence?||YES||No|
|$300,000 and Under||$0||15%|
Or stated (somewhat) into English, the revised withholding tax rules under the New Tax Law on real estate sales by non-US persons looks as follows:
The buyer (or in California and other states- the escrow company on behalf of the buyer) must withhold 15% of the gross sales price of the real estate, unless the gross sales price is between $300,001 and $1,000,000 and the buyer (who must be an individual or this reduction is not valid) acquires the property for use as residence, in which case 10% of the gross sales price must be withheld; or if the gross sales price is $300,000 or under and the buyer (who must be an individual or this exemption is not valid) acquires the property for use as residence, in which case $0 of the gross sales price must be withheld.
Notice the question of whether the buyer acquires the property for use as a residence is extremely relevant for real estate sales by non-US persons of $300,000 or under (in which case the withholding rate is 0 instead of 15%) and for real estate sales of $300,001 to $1,000,000 (in which case the withholding rate is 10% instead of 15%), but it is of no consequence at all for sales over $1,000,000. The withholding rate for sales above $1,000,000 is 15% regardless of the buyer’s planned use of the acquired residence.
So What Does the Condition That the Buyer Acquire the Property For Use As a Residence Mean? It does not mean the buyer must certify he or she will use the acquired property as a primary residence. Under Treasury Regulation Section 1.1445-2(d), the buyer is acquiring the property for use as a residence if on the date of the transfer the buyer(s) (or the buyer’s family) has definite plans to reside at the property for at least 50 percent of the number of days that the property is used by any person during each of the first two 12-month periods following the date of the transfer. The number of days that the property will be vacant is not taken into account in determining the number of days such property is used by any person. So this in an intent test as of the date of closing- the buyer is being asked to forecast his or her planned use for the acquired property for the next two years. For example, If the buyer has definite plans he or his family will reside at the acquired property for two months for each of the next two years, and the buyer has definite plans to rent the property to outside parties for one month a year for each of the next two years (and the rest of the year the buyer plans for the acquired property to remain empty), then the buyer is acquiring the property for use as a residence because the buyer has definite plans to use the property for personal or family use the majority of time anybody will use the property each of the next two years. Finally, note there exists no formal requirement that the buyer document his or her intent in writing, although in practice escrow officers should require the buyer to declare their intent to use the acquired property as a residence via the Buyer’s Affidavit (for protection of the escrow officer in withholding 0 or 10%, as the case may be), as discussed below.
Note that IRS Will Have to Revise The Form 8288. The IRS will now have to amend their Form 8288 (and the instructions) to reflect the new withholding tax rates under the New Tax Law. Presumably they will have to issue the revised Form 8288 (and the corresponding instructions) before the February 17, 2016 effective date.
Escrow Companies Should Revise Their Buyer’s Affidavit. In addition, many escrow companies currently have forms given to buyers which might be titled something like: BUYER’S AFFIDAVIT THAT THE BUYER IS ACQUIRING PROPERTY FOR USE AS RESIDENCE AND THAT THE SALE PRICE DOES NOT EXCEED $300,000.00 (the “Buyer’s Affidavit”). On the typical Buyer’s Affidavit, the buyer signs a statement providing that he or she is acquiring the real property for use as a residence, and that the buyer has definite plans that he or she or a member of their family will reside at the property for at least 50% of the number of days the property will be in use during each of the two 12 months periods following the transfer of the property. Escrow companies may wish to revise their Buyer’s Affidavit to detail the new withholding tax distinctions under the New Tax Law, if for no other reason than the clear understanding of the appropriate withholding tax rate by the escrow officer administering the sale. We at DIRECTS can assist any escrow company review and revise the Buyers Affidavit Form to reflect the new withholding tax rates under the New Tax Law.
Any Other Changes of Note for Escrow Officers To the Withholding Tax Rules Under the New Tax Law? Really the answer is no. There are some sophisticated changes to the required withholding tax rates on sales of interests in partnerships and REITs (Real Estate Investment Trusts) when the partnership or REITS is owned (at least in part) by a foreign pension plan. If any escrow personnel oversees the sale of interests in partnerships or REITs owned by a foreign pension plan, call or email us at DIRECTS.
Who We Are and What we Do at DIRECTS. DIRECTS, Inc. (Domestic and International Real Estate Closing Tax Services) is a California tax preparation company, owned and operated by a California licensed tax attorney. DIRECTS focuses exclusively on the tax issues encountered by non-US persons engaging in real estate transactions. DIRECTS can help foreign sellers of US real estate by assisting them in obtaining US taxpayer ID numbers (“ITIN’s”); by preparing withholding certificate applications for IRS permitted reduced withholding or for non-recognition (IRC Section 1031) transactions (IRS Form 8288-B applications); by preparing California withholding tax forms (Forms 593, 593-C and 593-E); and by preparing US and California tax returns required of the non-US sellers. DIRECTS helps escrow companies understand and administer the required withholding tax on sales by non-US sellers, and assists in their preparation of the IRS Forms 8288 and 8288-A (transmitting the required withholding tax to the IRS).
IF you have any questions on this Client Alert or the contents herein, or if you need assistance on any matters with respect to the required withholding tax on sales by non-US persons, call us at 760-346-6140 or email us at firstname.lastname@example.org. For more information about DIRECTS, visit us at www.directsllp.com.
Michael W. Brooks is a California tax attorney and the President and Owner of DIRECTS. Michael can be reached at the office at (760) 346-6140 or on his cell phone at (760) 898-3413, or email him at email@example.com.
The information contained in this article is provided for informational purposes only, and should not be construed as legal or tax advice on any subject matter. Michael W. Brooks and DIRECTS expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article.