New law makes changes to foreign investor property tax rules.
Big news for foreign investors. The recent tax legislation in Washington is changing foreign investor property tax law. The Protecting Americans from Tax Hikes Act of 2015, increases the tax withholdings on the sale or transfer of property owned by foreign investors. The withheld tax, however, is subject to be paid by the buyer, regardless of their nationality, American or otherwise.
Previous law required a tax withholding of 10 percent under legislation called the Real Property Tax Act of 1980. Under the law the buyer (or transferee) of a property owned by a foreign investor to have 10 percent of the gross proceeds withheld. The responsibility of checking the actual taxes due and ensuring taxes were not over or under paid, is then left up to the investor. Therefore, if any discrepancy is found, the investor would have to file a claim. The law was originally enacted to prevent foreign investors from evading income tax and taking profits outside of the US.
The new law makes changes to the Real Property Tax Act of 1980. The tax withheld increases from 10 percent to 15 percent. However, there are exceptions to the rule. The property must be acquired by the buyer or transferee to be used as their primary residence and the value of the transaction between buyer and seller must be under one million dollars. If the transaction is in fact deemed to be an exception, then the previous 10 percent rule applies.
The new Tax Act was signed by President Obama on December 18, 2015 and will go into effect 60 days thereafter (February 17, 2016).
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