Under current federal law, if a foreign person sells US real property, the buyer is obligated to withhold 10% of the gross sales price and remit this to the IRS. Pursuant to the Protecting Americans from Tax Hikes Act of 2015, however, which became law on December 18, 2015 (the “PATH Act”), the required 10% withholding will increase to 15% for all closings occurring on or after February 16, 2016. There is an exception to the increase for sales of a personal residence wherein the sales price is between $300,001 and $1,000,000. Under this circumstance, the 10% withholding rate continues to apply.
In summary:
- If the sales price is $300,000 or less AND the buyer will use as a personal residence – No change, exempt from withholding
- For all other real estate sales the buyer must withhold 15% of the sales price of the real estate (10% if a personal residence with a sale price between $300,001 and $1,000,000) and send it to the IRS within 20 days after the date of transfer.
