When working with a foreign Seller who is considered by the government as a non-resident alien for purposes of United States income taxation, you can avoid escrow delays and minimize both the Buyer’s and Seller’s frustrations by knowing and understanding the basic process that all foreign Sellers have to go through when selling property in the United States. It is essential foreign property owners consult with a tax attorney or CPA that specializes in foreign real estate investment before escrow opens to avoid potential delays.

Apply for a SSN or Tax ID Number

Begin by checking whether the foreign Seller who is transferring U.S. real estate has a valid Social Security number and/or Tax ID number. If they don’t, the Seller should seek the guidance of a Tax consultant or CPA specializing in foreign investors for the proper forms and further assistance submitting an application for IRS Individual Taxpayer Identification Number Form W-7. Married sellers need to submit one for each spouse. The application must be notarized and include a current, certified U.S. passport. The process of obtaining a Tax ID number will take at least eight weeks.

Early Submission Ensures Proper Tax Withholding

Any non-resident of the US who sells real estate in the U.S. will have up to 15% federal withholding as well as up to 3 1/3% California withholding. If the sellers do not start the Tax ID application process early, it delays any refund and/or reduction due to them.

Request a Reduction of Withholding with an Escrow Holdback

If your sellers feel that the withholding exceeds their capital gains, they can submit a Form 8288-B Application for Withholding Certificate for Disposition by Foreign Persons of US Real Estate Interests. A request to hold IRS funds needs the approval of the buyer and Escrow Holder. Th document submitted to the IRS requesting Reduction of Withholding needs to be approved early so the Escrow Holder processing the sale has time to obtain approval and hold funds.

In summary, it’s important to remember:

  • It takes at least eight weeks to submit IRS Individual Taxpayer Identification number Form W-7. Married sellers must submit one notarized application for each spouse with a current, certified U.S. passport.
  • Any nonresident who sells U.S. real estate will have up to 15% federal withholding and 3 1/3% California withholding. Not having a Tax ID delays any tax refunds or reductions.
  • The Seller might be able to reduce their withholding, but must allocate several weeks to be approved before submitting.
  • IRS Foreign Withholding Amounts:
Buyer Intends To Use Property as a Residence? YES No
$300,000 and Under $0 15%
$300,001- $1,000,000 10% 15%
Over $1,000,000 15% 15%

For further information and forms, Seller’s should consult their foreign tax specialist and can visit: