By Christopher A. Combs | Arizona Republic
Question: We sold a 20-acre parcel of land in Buckeye for $3 million. At the close of escrow, the escrow company transferred 15% of the sale proceeds — $450,000 — to the IRS. The escrow company said that this transfer is because we may have to pay capital gains taxes on the sale, and we’re not U.S. citizens. Is that correct?
Answer: Yes. Under the Foreign Investment in Real Property Tax Act, an escrow company is required to withhold and transfer to the IRS a certain percentage of the sale proceeds of most real property sold by people who are not U.S. citizens. If a seller of real property who is not a U.S. citizen files a tax return with the IRS that shows no capital gains tax is owed, the IRS will send them a refund.
Note: Under the Foreign Investment in Real Property Tax Act, the withholding is 15% for any real property that sells for more than $1 million. For real property that sells for more than $300,000 but less than $1 million, the withholding is 10%. There is no withholding for real property that sells for $300,000 or less.