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Responsibilities of nonresident property seller

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Dear Tax Talk,
We are nonresidents in the United States and live in the United Kingdom. We bought a condo in Florida in 1980 for $95,000 and have used it for three holidays every year since then. We are now considering selling the property; we believe it has a value of $350,000 to $400,000. What would be our U.S. tax implications? Your advice would be greatly appreciated. We do sign a form sent to us by our bankers, which may well be a 1040, but I’m not sure at the time of this writing. Kind regards
. — Chris

Dear Chris,
The sale of U.S. real property by foreign persons is taxable in the United States. The buyer at closing withholds an estimated tax of 10 percent of the selling price when the property seller is a nonresident. The seller’s tax is equal to 15 percent of the gain.

In your case, if the selling price were $350,000 net of costs, and your original cost including improvements was $95,000, your gain would be $255,000 and your tax would be $38,250. Since this is practically equivalent to the amount of tax to be withheld, there is no need to apply for reduced withholding on the sale. (In some cases where the gain is relatively little, there is a procedure for
applying for reduced withholding prior to the sale.)

As a matter of course, the buyer will withhold 10 percent of the selling price and remit it to the Internal Revenue Service together with
Form 8288-A identifying you as the seller. If you don’t already have U.S. tax identification numbers, it would be a good idea to submit a
Form W-7 application for an individual tax identification number together with the Form 8288-A. You’ll need a tax identification number because you’ll be required to file a
Form 1040-NR and pay any tax difference to the IRS together with that form when you file it early next year.