Form 8288-B: Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests

Form 8288-B or "Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests," is an Internal Revenue Service (IRS) document used by foreign sellers of U.S. real estate. Its primary purpose is to reduce or eliminate the mandatory withholding tax imposed on the sale of such property.

Why is Withholding Required?

The IRS requires a 15% withholding tax on the gross sale price of U.S. real estate sold by foreign persons (individuals or entities). This serves as a security measure to ensure that the seller pays any applicable capital gains tax on the sale.

How Does Form 8288-B Help?

By filing Form 8288-B, a foreign seller can demonstrate to the buyer that they are exempt from or qualify for a reduced withholding rate. This allows the buyer to retain a lower amount (or none at all) from the sale proceeds and remit it to the IRS.

Who Should Use Form 8288-B?

This form is relevant for any foreign person (individual, corporation, trust, or estate) selling U.S. real property and seeking to:

  • Avoid the 15% withholding tax altogether.
  • Reduce the withholding rate to a lower percentage.

What are the Exemptions to Withholding?

There are limited situations where withholding may not be required. These include:

Low-value sales: If the sale price is less than $300,000 (subject to inflation adjustments), withholding might not be necessary.

U.S. tax treaty benefits: If there's a tax treaty between the seller's home country and the U.S. that reduces or eliminates the withholding requirement, you may be exempt.

What Information Do I Need to File Form 8288-B?

Form 8288-B requires detailed information about the seller, buyer, and the property being sold. Some key details include:

  • Seller's tax identification number (TIN) - This could be a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). Form W-7 is used to apply for an ITIN if you don't have an SSN and are eligible.
  • Buyer's name and address
  • Property address and legal description
  • Sale price
  • Estimated amount of U.S. tax liability

What Happens After I File Form 8288-B?

The IRS will review your application and may request additional documentation. Once processed, they will either:

  • Issue a withholding certificate specifying the reduced or eliminated withholding amount.
  • Deny the application, requiring the buyer to withhold the standard 15%.

What if My Withholding Certificate is Denied?

If your withholding certificate request is denied, you have options:

  • Negotiate a lower withholding rate with the buyer.
  • Pay the withheld tax and file a tax return to claim a refund if eligible.
  • Consult with a tax advisor to explore other options.