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Understanding U.S. Tax Filing Requirements for Non-Residents Who Sold Land in Texas

  • Writer: Just Breve
    Just Breve
  • Jun 30
  • 4 min read

Just Breve - Understanding U.S. Tax Filing Requirements for Non-Residents Who Sold Land in Texas

Understanding U.S. Tax Filing Requirements for Non-Residents Who Sold Land in Texas


If you're a non-resident who has sold land in Texas, you might be wondering about your tax obligations in the U.S. The sale of property by non-residents in the United States is subject to specific tax rules, and failing to comply can lead to penalties or unwanted complications. In this post, we’ll break down the key U.S. tax filing requirements for non-residents who sell land in Texas and whether or not you need to file a state tax return.


1. U.S. Federal Tax Requirements for Non-Residents Selling Land in Texas

As a non-resident alien (a person who is neither a U.S. citizen nor a U.S. resident for tax purposes), the IRS generally taxes your U.S. source income, including capital gains from the sale of property located in the United States. When you sell land in Texas, you must comply with the IRS’s rules regarding the taxation of such gains.


Capital Gains Tax on the Sale of U.S. Real Property

The U.S. taxes the sale of U.S. real property by non-residents under the Foreign Investment in Real Property Tax Act (FIRPTA). Under FIRPTA, the sale of land in Texas (or any real property in the U.S.) is treated as U.S.-source income, and you will be subject to U.S. tax on the gain, regardless of whether you live outside the country.


  • Withholding Tax: When a non-resident sells real estate in the U.S., the buyer is typically required to withhold a percentage of the sale price (not the gain) and remit it to the IRS. This withholding rate is 15% for most real estate transactions involving non-residents. The amount withheld will be applied to your final tax liability.

  • Filing a U.S. Tax Return: To determine your actual tax liability, you will need to file a U.S. income tax return (Form 1040-NR). This return will allow you to report your capital gain from the sale of the land, claim any deductions, and calculate whether you owe more tax or if a refund is due based on the amount that was withheld.

    • If the withholding tax was more than your final tax liability, you can receive a refund.

    • If the withholding tax was less than your tax liability, you will need to pay the balance due when filing your return.


Filing Form 1040-NR

Form 1040-NR is the U.S. income tax return for non-resident aliens. You will use this form to report the sale of your Texas land, along with any other U.S. income, and calculate your U.S. tax obligations. The form must be filed by April 15th of the year following the sale, or by June 15th if you live outside the U.S.


When filing the form, you will need to provide details about the sale, including the sale price, the original purchase price, and any costs associated with the sale (such as closing costs and improvements made to the property).


2. State Tax Filing Requirements for Non-Residents Selling Land in Texas

Texas is one of the few states that does not impose a state income tax. As such, there are no state-level income tax obligations for the sale of property in Texas, including capital gains tax. Non-residents do not need to file a state income tax return for the sale of land, and there are no Texas-specific taxes on capital gains.


Property Taxes and Local Tax Implications

While Texas doesn’t have a state income tax, local property taxes could be a concern for landowners, including non-residents. You may still be responsible for paying property taxes up until the date of sale. When the property is sold, the local taxing authorities will usually prorate the property taxes to account for the portion of the year you owned the property.


However, these property taxes are separate from income taxes and will not affect your requirement to file a state income tax return (since Texas has none).


3. Important Considerations

  • FIRPTA Withholding: The buyer of your land is responsible for withholding the FIRPTA tax at the time of sale. You should ensure that they follow this procedure, as failure to do so could result in penalties for both you and the buyer.

  • Filing Deadlines: As mentioned earlier, your tax return (Form 1040-NR) must be filed by April 15 (or June 15 if you live outside the U.S.). Make sure you file on time to avoid interest and penalties for late filing.

  • Seeking Professional Help: Tax laws can be complex, especially for non-residents dealing with U.S. property sales. It is advisable to consult a tax professional or accountant like Just Breve who specializes in international tax matters to ensure compliance and optimize your tax situation.


4. Conclusion

Selling land in Texas as a non-resident involves U.S. federal tax obligations, including potential withholding under FIRPTA, and the need to file a Form 1040-NR to report your capital gains. However, since Texas does not have a state income tax, there are no state tax returns to file.


Make sure to keep detailed records of the sale and consult with tax professionals to ensure that you meet all your tax obligations and take advantage of any available deductions or credits. While the process can seem daunting, understanding these requirements can help you avoid unnecessary penalties and potentially lower your overall tax liability.


Can Just Breve help?

Yes, we can. Just Breve is a US tax accounting firm, assisting non-US persons with their US tax filing requirements, including filing a 1040NR and obtaining an ITIN. We assist in applying for a new ITIN or renewing an existing ITIN. We are a certifying acceptance agent (CAA) and have a contract with the IRS to help with Form W-7 ITIN applications (and EIN applications).


T: 0208 1444632


 
 
 

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