Ask the tax adviser
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
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.
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).
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