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Tax Talk with George Saenz

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Immigration status affects property sale taxes

Dear Tax Talk:
I am preparing to sell my home and was shocked to hear that since I am not a U.S. citizen, I have to pay 10 percent of the gross selling price to the Internal Revenue Service. I am here on F1 status, applied for a green card last year, was among those selected, but now still am awaiting the final immigration decision.

I'm also still waiting to hear about my application to graduate school in Houston where I plan to buy another home. Does this 10 percent withholding still apply even if I buy another home? U.S. citizens who buy another property don't have to pay taxes. If the IRS withholds 10 percent of the selling price, do I ever get that money back? I really appreciate your help. Thank you.

Dear Jessica:
You're in between resident and nonresident, which is what swings your tax consequences on the sale of the house.

A resident can exclude up to $250,000 in gain on the sale of a primary residence; a nonresident cannot. As a student, you're not considered a resident until after five calendar years in the United States on an F1 visa. This means you'll be a nonresident in 2002 (the year you're selling the house) if your studies commenced in 1998 or later (this makes 2002 your fifth year).

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However, if you get your green card in 2002, then you could be considered a resident for the entire year. But even if you are considered a resident for the entire year because of the green card, it may be questionable whether the house qualifies as your primary residence. To get the exclusion, the house has to be your primary residence for two of the last five years. Since you were considered a nonresident for part of this time, the house may not be considered your primary residence.

All this may mean nothing if you have little or no gain on the sale of the property. If you get your green card before the sale, you can provide the nonforeign affidavit that will get you out of the withholding. Even if you have the 10 percent withheld you can still claim a refund by filing the appropriate tax return and figuring your correct tax. For example, if $10,000 in tax is withheld but your actual tax is only $2,000, you'll get a refund of $8,000 when you file your taxes in 2003.

Since you have such a unique situation, I suggest you get with a good accountant familiar with international tax and student visas to discuss these issues.

-- Posted: Oct. 22, 2002

Read more Tax Adviser columns
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See Also
Avoiding nonresident withholding
Reporting a property sale by a non-U.S. owner
Foreign property owners still owe capital gains
Tax glossary
More tax adviser stories
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