Form 8288-A: Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests

Form 8288-A is an Internal Revenue Service (IRS) document used in conjunction with Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests. It serves as a statement that verifies the amount of federal income tax withheld by the buyer (transferee) from the sale or other disposition of U.S. real property by a foreign person (transferor).

What's the Purpose of Form 8288-A?

This form plays a crucial role in ensuring U.S. tax collection on real estate gains realized by foreign sellers:

A. Documents Withholding: Form 8288-A serves as official documentation that the buyer withheld a specific amount of tax from the sale proceeds.

B. Verification for Seller: The seller receives a copy of Form 8288-A, which they can use to claim credit for the withheld tax when filing their U.S. tax return.

C. IRS Reporting: The buyer uses Form 8288-A along with Form 8288, "U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests," to report the withheld tax to the IRS.

Who Needs Form 8288-A?

Buyers/Transferees: If you are purchasing real estate in the U.S. from a foreign seller, you are generally responsible for withholding income tax on the sale proceeds. In such cases, you'll need to complete Form 8288 and provide Form 8288-A to the seller.

Foreign Sellers (Transferors): As a foreign seller of U.S. real property, you may have income tax withheld from the sale proceeds. You'll receive Form 8288-A from the buyer, which you can use to claim credit for the withheld tax on your U.S. tax return.

What is the Withholding Rate on U.S. Real Property Sales by Foreign Persons?

The general withholding rate for sales of U.S. real property by foreign persons is 15% of the sale proceeds. However, there can be exceptions depending on the type of foreign transferor and the existence of a tax treaty between the U.S. and the seller's home country. It's crucial to consult a tax professional to determine the correct withholding rate for your specific situation.

How Do I File Form 8288-A?

The buyer (transferee) is responsible for completing and filing Form 8288-A with the IRS. They should also send a copy to the foreign seller (transferor). The IRS does not require the seller to file the form themselves.

How Can I Claim Credit for Withheld Tax on My U.S. Tax Return (Foreign Transferor)?

To claim credit for the tax withheld on your U.S. tax return, you will need to attach a copy of Form 8288-A to your return. You can find specific instructions for claiming the credit based on the tax form you file (e.g., Form 1040NR, 1041, etc.) by referring to IRS publications 515 (Basis of Assets and Depreciation) and 519 (U.S. Tax Guide for Aliens).

Can I Get a Refund of Withheld Tax Before Filing My Tax Return?

Yes, you may be eligible to request an early refund of the withheld tax before filing your U.S. tax return. You can do this by filing Form 8288-B, Application for Withholding Certificate for Disposition by a Foreign Person of U.S. Real Property Interest. However, specific conditions apply for eligibility, and you should consult a tax professional to determine if you qualify for an early refund.

How Much Tax is Withheld?

The standard withholding rate is 15%, but it can be:

  • 21%: For certain foreign interest holders like beneficiaries or shareholders.
  • 10%: In cases involving transfers of interest in partnerships engaged in U.S. trade or business.

How Does the Seller Claim Credit for Withheld Tax?

The seller needs to file a U.S. tax return (e.g., Form 1040NR, 1041) and attach Form 8288-A to claim credit for the income tax withheld. Alternatively, they can request an early refund from the IRS.