Rent vs Buy Under Visa Uncertainty

Under the Foreign Investment in Real Property Tax Act, a buyer purchasing US real property from a foreign person must withhold and remit a tax equal to fifteen percent of the total amount realized on the sale — the full price, not the gain — for dispositions on or after 16 February 2016. "Foreign person" for this purpose turns on tax residency, not visa category: a visa holder who has become a nonresident alien for tax purposes by the time of sale is a foreign person here, even if they held the property for years as a resident. The withholding is not a final tax — it is reconciled against actual liability only when a return is filed for that year.

No withholding is required when the buyer acquires the property for use as a residence and the amount realized is not more than three hundred thousand dollars. The buyer, or a member of the buyer's family, must have definite plans to reside at the property for at least half of the number of days it is used by anyone, in each of the first two twelve-month periods after the transfer — vacant days are not counted, and the buyer must be an individual, not an entity.

Where the buyer acquires the property for use as a residence and the amount realized is more than three hundred thousand dollars but does not exceed one million dollars, the withholding rate drops from the general fifteen percent to ten percent of the full amount realized. Above one million dollars, or where the buyer will not occupy the property as a residence, the general fifteen percent rate applies regardless of price.

Either the buyer or the seller may apply to the IRS for a withholding certificate before closing, using Form 8288-B, asking the IRS to approve withholding at the seller's actual expected tax liability instead of the flat statutory percentage of the gross price. This is the same shape as the certificate route an NRI seller of Indian property uses under section 197 of India's Income-tax Act: identify the transaction, apply before closing, and the withholding shrinks from a tax on the whole price to a tax on the actual gain. The IRS states a standard processing time; practitioners report it can extend past a scheduled closing date if filed late, which is why applying the moment a sale is likely — not once it is signed — is the position this tool takes.