When selling a US property, as a non resident you will find that the US agent has to withhold US tax on the gross sales price of the property. This can vary from 10% to 15% of the gross sale price.
This is known as FIRPTA tax - Foreign Investment in Real Property Tax Act.
As part of the process, you are allowed to apply for a reduced withholding amount using Form 8288-B. This form allows for a calculation of the actual tax liability which can result in a nil withholding where losses occur or the gain is no more than $40,000 (per person). The Form 8288-B requires both a calculation and supporting documents submitted with it AND will require approval or rejection from the FIRPTA unit. If approved, you will receive a certificate of exemption. In the interim, funds will be held in escrow by the US agents (as the withholding agent for the transaction), pending the decision.
This can be favorable in terms of timing of cash movements. If the application is made at the beginning of the year, you will not have to wait until the following year to file a US 1040NR tax return to claim back any withholding. Decisions are made within 90 days of application and applications have to be made at or close to closing of the sale transaction.
Please note, due to Covid, decisions and certificates are taking much longer and delays of 6 months plus have occurred.
If your US agent is unable to assist with the completion of Form 8288-B, Just Breve will be able to assist in the completion of the paperwork. Various documents and information will need to be provided by you to us to prepare and calculate the reduction in tax. As well as you ensuring all information is provided before closing for the submission to be valid.
Read more on FIRPTA here - 15% FIRPTA reduced tax withholding
If you are selling a US property and need assistance in completing form 8288-B or if you are required to file Form W-7 for an ITIN application at closing, Just Breve can assist in the process:
T: 0208 1444632