As the U.S. housing market continues to improve, many property owners are able to take advantage of the increase in property values and higher asking prices when they decide to sell. As such, sellers need to be aware of the tax implications when selling a home. Nonresident aliens especially need to be aware of their reporting and tax requirements. Even though FIRPTA withholding may be withheld at the time of sale, or perhaps there may not be any gain to recognize, the nonresident is still required to file a U.S. tax return and report the sale. A federal income tax return is required and a state income tax return may be required, depending on the respective state.
Gain on the sale of real property is taxable; if the property was ever used as a rental property and depreciation expense was taken, that depreciation will need to be recaptured and taxed at a higher rate of tax. This is true of both U.S. residents and nonresidents.
Nonresidents should also be aware that the U.S. Alternative Minimum Tax (AMT) may apply when disposing of a U.S. real property interest. AMT is an additional tax that generally applies to taxpayers who have a higher income but their tax is lower due to some benefits they are able to claim under certain tax laws. AMT ensures these taxpayers pay at least a minimum amount of tax. A ‘special’ rule applies to nonresident aliens that effectively denies the benefit of the individual exemption amount for AMT purposes. As a result, nonresidents may find themselves subject to both regular U.S. tax and AMT.
Please be sure to consult with a qualified tax professional, as this information is general in nature and should not be relied upon.
Jill A. Helm, CPA