You’re Withholding How Much Of My Seller’s Proceeds?

Written by Joel Gerber. Posted in Real Estate

What Every Listing Agent MUST Know About Sellers Who Are Not U.S. Citizens Or Georgia Residents

So your seller is not a U.S. Citizen (and does not have a Green Card). . .

Under federal law (specifically, the Foreign Investment in Real Property Tax Act (“FIRPTA”)), if a foreign person sells U.S. real property, the buyer is required to withhold no less than ten percent (10%) of the sales price and remit it to the IRS. Yes, I said the sales price. If that isn’t bad enough, in some instances the ten percent (10%) can be as high as fifteen percent (15%). Like everything else in life, however, there are always few exceptions (and one fairly common one). So let’s look at this a little closer.
  1. If the purchaser is buying the property as an investment property or second home, the closing attorney (on behalf of the buyer) is required to withhold from the seller fifteen percent (15%) of the sales price and remit that amount to the IRS.
  2. If the purchaser is buying the property as his or her personal (primary) residence and the purchase price is $300,000.00 or less, no withholding is required. Personal residence means the purchaser has definite plans to reside at the property at least fifty percent (50%) of the days the property is used by the purchaser during each of the first two 12-month periods after closing.
  3. If the purchaser is buying the property as his or her primary residence and the purchase price is over $300,000.00 and up to $1,000,000.00, the closing attorney (on behalf of the buyer) is required to withhold from the seller ten percent (10%) of the sales price and remit that amount to the IRS.
  4. If the purchaser is buying the property as his or her primary residence and the purchase price is over $1,000,000.00, the closing attorney (on behalf of the buyer) is required to withhold from the seller fifteen percent (15%) of the sales price and remit that amount to the IRS.
While the closing attorney is required to remit the withholding discussed above, the seller may be entitled to reimbursement of the withholding from the IRS. Also, a seller that would typically be subject to the withholding can apply for a waiver from the IRS in advance of the closing. If that waiver is presented to the closing attorney prior to closing, no withholding will be required.

Got it . . . good.

Enough about the federal side of things, let’s look at withholdings from the State of Georgia’s perspective.

So your seller is not a Georgia resident. . .

Under Georgia law, the closing attorney (again on behalf of the buyer) is required to withhold three percent (3%) of the “realized gain” in connection with the sale of Georgia real property if the gain is more than $20,000.00. You read that correctly, the withholding is just on the gain, not the sales price. The closing attorney then remits the withholding to the Georgia Department of Revenue (and yes in some instances the seller can seek reimbursement).

You calculate the “realized gain” by taking the cost the seller bought the property for (plus) any depreciation (minus) closing costs, improvements made to the property and the amount they are selling it for. While there are some exceptions to this general rule, they are few and far between. So if you know your out of state seller client is selling the property for a good deal more than they bought it for (in other words his/her gain will be more than $20,000.00), you should mention this to them early on so he/she is not surprised when the closing attorney tells them they are required to withhold some of the seller’s proceeds at closing.

As always, if you need help with anything at all, please do not hesitate to contact me anytime at (912) 484-1996 (even nights and weekends) or email me at jgerber@brannenlaw.com.

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