U.S. Non-Residents Selling Property: Capital Gains Tax

The proceeds of the sale of your U.S. property are subject to a withholding tax that is withheld by the buyer, or the buyer’s agent, and remitted to the IRS.

The standard withholding tax is 15% of the sale proceeds, but there are certain withholding reductions or exemptions if your property is a vacation property or your residence.

To qualify for a reduction or exemption, the buyer must be an individual, and the buyer or a family member:

  • Intends to use the property as a personal residence.
  • Intends to live there for at least 50% of the time for each of the first two years after the sale.
  • Agrees to sign a residential use affidavit stating the above.

The rate of withholding for any other situation is 15%.

Withholding Rates & Exemptions

If the above conditions are met, the following rates apply:

  • Sale price under $300,000. This sale is exempt from withholding.
  • Sale price $300,000 to $1,000,000. The withholding is 10%.

Reduction Based on U.S. Taxes Owing

You can also apply for a reduction if the withholding amount will be more than your total U.S. taxes, or if you sold your property at a loss.

You will need to submit Form 8288-B to the IRS by the sale closing date. To substantiate your claim, a calculation or the anticipated capital gains tax must be included.

Calculation of the Capital Gain

The capital gain is the amount of the proceeds of the sale, less:

  • Your original purchase price.
  • The amount invested in improvements. This includes capital improvements such as a home addition, roofing, or landscaping. It does not include decorative enhancements or personal property.
  • Selling costs of closing the sale.

Capital Gains Taxes for U.S. Non-residents

The capital gains tax rate is based on three factors:

1 Your Period of Property Ownership

Ownership for up to 365 days is a short-term capital gain and will be taxed as ordinary income. The premise of this treatment is that the property was purchased with the intention of flipping it.

Ownership for over 365 days will qualify for a preferential capital gains rate.

2 Your Income Range & Tax Bracket

Your tax bracket is based on the total amount of your U.S. income. For short-term capital gains, the tax rate ranges from 10% to 37%. For long-term capital gains, the rate will be 20% or less.

3 The Use of Your Property

In most cases, U.S. non-residents are selling vacation homes. The rates above apply to these sales.

If you are also a U.S. resident or citizen, or under certain other use tests, you may qualify for a partial or full capital gains tax exemption.

Selling Your U.S. Property at a Loss (Capital Loss)

If your property was sold at a loss, you can apply for an exemption from, or reduction of, the withholding tax. Submit a completed Form 8288-B (Application for Withholding Certificate) before the sale closing date.

Tax Filing to Report the Sale

1 Report the Sale on Your U.S. Federal and State Tax Returns

The returns are filed in the year following the property sale.

You are required to have an ITIN (Individual Taxpayer Identification Number) to file your return. Once your taxes are filed, you can get a refund of any withholding exceeding the amount of taxes owed.

2 Report the Sale on the Tax Return for Your Country of Residence

Depending on your country of residence:

  • You might be subject to tax on your worldwide income, including gains on your U.S. property sale.
  • You might also be able to claim a foreign tax credit for the U.S. taxes paid.
  • In certain situations, your property may be treated as your principal residence.

FIRPTA GLOBAL: U.S. Income Taxes Done Right

Your U.S. personal tax returns should be prepared by someone knowledgeable about the required documentation and information with respect to FIRPTA. If the requirements aren’t met, this could cause serious delays, late filing penalties, and interest charges.

As FIRPTA and U.S. tax experts, we’ll make sure that your tax filing is done right so you can breathe easy.

Let FIRPTA GLOBAL Handle Your FIRPTA Needs

Our services can be provided virtually or in person. Contact us to start the process!

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