SOLE PROPRIETORS, INVESTORS
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SALE OF REAL PROPERTY

 

Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. You must treat the gain or loss as effectively connected with that trade or business.

If you dispose of a U.S. real property interest, the buyer may have to withhold a tax equal to 15% of the amount realized on the disposition. However, if the property is acquired by the buyer for use as a residence and the amount realized does not exceed $1,000,000, the rate of withholding is 10%.

Withholding is not required in the following situations.

1. The property is acquired by the buyer for use as a residence and the amount realized is not more than $300,000.

2. You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U.S. taxpayer identification number, and home address.

3. The buyer receives a withholding certificate from the IRS.

4. You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty.

State Issues

Generally, a state authority also requires withholding on payments made to nonresidents for the amount realized on the disposition. Please note that state tax rules are complicated and every state has its own set of rules. When state tax rules are not followed, there are penalties and interest imposed.