Fifteen Percent of the Price, Not the Gain

Where a foreign person disposes of United States real property, the standard withholding is fifteen percent of the amount realized on the sale — the gross figure, not the gain. Sources describing it are explicit that this is calculated on the sale price rather than the profit, with the consequence that a seller with little or no actual gain, or with a loss, can still have fifteen percent of the entire price withheld at closing. That is the fact that surprises people and the reason the rest of this page matters: the sum withheld bears no necessary relationship to the tax that will eventually be owed, and on a property that has not appreciated it can exceed it by a wide margin.

The buyer, not the seller, is legally responsible for withholding and remitting. Sources state that a buyer who fails to withhold when required becomes personally liable for the tax together with penalties and interest. Two consequences follow for a seller, and the second is the one that affects the transaction. The first is that the money is taken out of the seller's proceeds by somebody else's obligation. The second is that a buyer and their agents, once they understand the exposure, become extremely cautious — which is why a seller who has not addressed this in advance can find the closing itself becoming difficult rather than merely expensive. Raising it early is therefore in the seller's interest, not something to hope goes unnoticed.

Where the seller expects the real tax liability to be less than the standard withholding, an application may be made to the tax authority for a withholding certificate, on a dedicated form. Sources describe the authority reviewing the application and, if approved, authorising withholding at a reduced rate or amount matching the anticipated liability — and note that either the seller or the buyer may apply. This is the single most useful mechanism on the page and it is the exact analogue of the certificate route documented for the Indian side of this site. Like that one, it is only useful in advance: the point of it is to change what happens at closing, and once closing has happened the only route left is the slower one below.

Reduced rates apply where the buyer will use the property as a residence: sources describe nil withholding where the amount realized is three hundred thousand dollars or less, and ten percent where it falls between that figure and one million dollars, in each case conditional on the residence use. The condition is specific: the buyer, or certain close family members described as brothers, sisters, spouse or lineal descendants, must intend to reside at the property for more than half the number of days in each of the two years following the acquisition. Notice what that makes the rate depend on — a stranger's intention about their own future living arrangements. A seller cannot verify it, cannot control it, and should not assume it, and a buyer who is purchasing to let has no route to the reduced rate however small the price.

The two regimes are structurally the same in four respects, and recognising that is worth more than memorising either. Withholding is computed on the gross consideration rather than the gain, so it bears no necessary relationship to the tax actually due. The obligation sits on the buyer, who carries the exposure for getting it wrong. The only way to reduce it is a certificate obtained from the authority in advance, which takes time and therefore has to start before the transaction closes. And anything over-withheld comes back only by filing a return for the relevant year. A seller who has been through the Indian version and assumes the American one will be gentler, or the reverse, is making the same mistake in either direction — and because the two are usually encountered years apart, nobody joins them up.

Where more has been withheld than the eventual liability, the excess is recovered by filing a United States tax return for the year of the sale and claiming credit for the amount withheld. That is a real route and it works; it is also slow, it happens in a subsequent filing season rather than at closing, and it requires the seller to file a return in a country they may by then have left. Anybody whose plans depend on the sale proceeds — a purchase elsewhere, a debt to clear, a move to fund — should plan against the withheld figure rather than the net one, because the difference between them is money that exists but is not available on the timetable the seller is working to.

The certificate has to be applied for before closing to affect what happens at closing. The buyer's residence intention, which decides whether the rate is nil, ten percent or fifteen, is knowable during negotiation and unknowable afterwards. The buyer's own exposure is best raised early, while it is a fact to plan around rather than a discovery that unsettles a deal in its final week. And the seller's own tax position — what the liability will actually be, against which any certificate application is measured — takes working out. None of that is difficult and all of it is time-dependent, which is the same conclusion the Indian side of this site reaches about its own certificate: the mechanism is generous to whoever started early and useless to whoever did not.

No figure here is a calculation of what any particular sale would attract, and none should be treated as one: whether a seller is a foreign person for these purposes, what the amount realized is, whether an exemption applies and what the eventual liability will be are all facts this page cannot see and some of them are genuinely technical. Nor does it reproduce a form, a procedure or a processing time, and it names no accountant, agent, title company or advisory firm and has no relationship with any of them. What it offers is enough to know that this exists, that it is computed on the price rather than the gain, and that the mechanism which fixes it only works in advance — which is what turns a nasty surprise at closing into a question asked of a cross-border tax adviser in good time.