Why Must a Non-US Seller of US Real Estate Obtain an ITIN (Individual Taxpayer ID Number)?
The IRS requires that the buyer (via the escrow company or other settlement agent) deduct a withholding tax of 15% (of the gross sales price) from the sales proceeds at the time of close when the seller is a non-US person. California requires 3.3% of the gross sales price be deducted (some other states require different state withholding tax amounts at the time of sale). Both withholding taxes are fully or partially refundable, but the non-US seller will only receive a refund if he or she obtains an ITIN. If the non-US seller never obtains an ITIN, the non-US party will NEVER receive any refund of either the 15% (or 3.3% in the case of California) withholding taxes. Many foreign sellers never receive a refund of the (excess) 15% withholding tax simply because they can never figure out how to properly obtain an ITIN.
How Does a Foreign Seller of US Real Estate Obtain an ITIN?
The seller must send a detailed application into the IRS. The foreign party will need professional assistance with the application (which DIRECTS can provide). One mistake and the ITIN application will be rejected by the IRS (although the IRS will probably take months to mail the rejection to the foreign seller, and this delay in response time itself will harm the foreign party), and if the ITIN application is rejected (even once), the non-US seller will find it harder to receive a refund of the withholding tax. No ITIN, no refund of the withholding tax (ever). In the ITIN application, the seller must include several documents and IRS forms, and (very importantly) the foreign seller must also include a certified copy of their home country passport. A seller may obtain a certified copy of their home country passport at:
- The US Embassy in the seller’s home country; or
- If the non-US seller is willing to Federal Express their home country passport to one of our offices (in Arcadia, Irvine or Palm Desert), DIRECTS can provide a certified copy of the foreign seller’s passport. After a WeChat or Skype meeting between DIRECTS and the foreign seller (while we at DIRECTS have the foreign seller passport), DIRECTS will return the passport via Fed Ex right away to the foreign seller. DIRECTS’ personnel have been authorized by the IRS to certify passports (DIRECTS is an IRS certifying acceptance agent) (and therefore a trip to the US Embassy can be avoided by the foreign seller if they are willing to Federal Express to DIRECTS at one of our offices in California); or
- If the foreign seller is in the United State, they may us in person with their passport in hand at our Arcadia, Irvine or Palm Desert office.
When Should a Non-US Seller Apply for an ITIN?
Since the seller will be eager to receive the available refund of the 15% and 3.3% withholding taxes, and since the foreign seller cannot receive a refund until they obtain an ITIN, they will want to apply for their ITIN as soon as possible. The soonest the foreign seller will be able to apply for an ITIN (while selling their US real estate) is only once they enter into a contract to sell the US real estate. If they are obtaining an ITIN to receive a refund for a sale which has already occurred, they will be able to apply for an ITIN right away. Contact DIRECTS to apply for ITINs.
How Can DIRECTS Help With ITINs?
DIRECTS prepares the applications for ITIN’s for non-US sellers. DIRECTS will also obtain ITIN’s for foreign parties who are earning rental income from renting out their US real estate. Finally, DIRECTS will also prepare all necessary tax forms required to obtain the proper refund due to the non-US sellers.