Foreigners Investing in US Real Estate.

Common errors investors make:

Realtors are usually not familiar with tax requirements regarding foreigners.

When a foreigner is looking to invest in Real estate in the US, the first thing I notice is that the tax system at where they are from is much different from the system in the US.

Under Code Section 1445, the seller of any US property MUST withhold 15% of the amount they realized on the sale if the buyer is a foreign person. The seller is responsible for withholding 15%. The sellers must report the withholding on tax form 8288 and 8288-A. They have 20 days after the sale to report the tax withheld.

If the seller fails to withhold and report the tax, they are exposing themselves to penalties from the IRS.

So, who the foreign person in terms of the IRS is? Any foreign corporation, foreign individual, any other foreign entity.

Who is the seller? A domestic or foreign corporation, qualified investment entity, fiduciary of certain trusts or estates. Withholding may also be reported in 1042 under certain conditions.

Another error is that property managers ask their foreign lessors for a W-9 to fill out, instead of a W8-BEN-E (foreign entities) or W8-BEN (foreign individuals).