International: 4 important rules

1. Know what constitutes "for¬eign" for tax purposes. Individuals are U.S. residents if they have either a "green card," which admits an individual into the United States as a permanent resident during the current calendar year, or a "substantial presence" in the country. A substantial presence is established when an individual either physically re¬sides in the United States for 183 days or more during the year or meets the formu¬la for residency over a three-year period.

2. Know that 10 percent of the contract price of a sale made by a nonresident foreign owner must be withheld for tax purposes under the provisions of the Foreign In¬vestment in Real Property Tax Act. This amount must be paid to the IRS within 20 days of the sale. A seller may obtain a qualifying statement from the IRS that reduces or eliminates this with¬holding requirement. Properties that sell for under $300,000 that will be used by the purchaser as a residence for a speci¬fied time period are also exempt. Sellers who've furnished a "nonforeign affidavit" certifying that they will pay the tax are likewise exempt from withholding.

3. Ensure that foreign buyers and sellers have international tax iden¬tification numbers if they don't qualify for Social Security num¬bers. These numbers, issued by the fed¬eral government (www.federaltaxid.us), appear on all tax returns filed by nonresi¬dent aliens and on forms that show with¬holding from real estate proceeds.

4. Don't forget cash flow. If you col¬lect rents or other income for rental prop¬erties owned by foreigners who aren't engaged in U.S. business or trade, you must withhold 30 percent of the gross income (before expense deductions) for tax purposes before paying revenues out to the foreign owners. The withholding amount can be less if the country where the owner resides has an income tax treaty with the United States.

Source: www.REALTOR.org/realtormag