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Foreign property owners
still owe capital gains
Dear Tax Talk:
Nonresident aliens pay what percentage
of capital gains tax on the sale of a vacation residence (condo)
in Florida? Does the 10-percent deduction at closing for FIRPTA
have an impact on this? And are we able to factor in improvement
costs for a deduction in taxes paid?
Mari
Dear Mari:
A nonresident alien is subject to a slightly different regime
of taxation when it comes to capital gains on the sale of U.S. real
property interests. The Foreign Investment in Real Property Tax
Act, or FIRPTA, was enacted to ensure that the IRS collects its
share of tax from the gain on real property sold by a foreigner.
First off, FIRPTA requires in most instances that
the purchaser of property acquired from a foreigner withhold 10
percent of the purchase price and pay it over to the Internal Revenue
Service as an estimate of tax due on the sale. The purchaser sends
the money to the IRS together with Form 8288-A, a stamped copy of
which is returned to the foreigner. The foreigner claims credit
for the withheld tax when he, she or it (in the case of a corporation)
files their tax return.
A nonresident alien is basically subject to a minimum
tax on the gain of 26 percent. In computing the gain, the foreigner
can take into account any improvements. The minimum tax is computed
on IRS
Form 6251. If the tax withheld is greater than this the
foreigner will get a refund. Otherwise the balance is owed.
-- Posted: Aug. 21, 2002
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