While shopping for a home, you may come across a property owned by someone that lives overseas. If you purchase a home from a non-US resident, and they don’t pay the income taxes or capital gains on the property, you could end up responsible for the amount. But don’t panic! This is where the 8288 tax form comes in.
Buying a property from a non-US resident happens frequently as people may invest in US real estate, move here for work or military service, or any other number of reasons. It is so common that a tax act called FIRPTA (Foreign Investment in Real Property Tax Act) was passed to help the IRS track these transactions, and the income taxes that foreigners are required to pay when selling property in the USA.
FIRPTA is unique because it requires the buyer to handle the additional tax if the foreign seller or sellers do not pay it. And this is where the 8288, 8288-A and 8288-B forms come in.
Below you’ll find FAQs about the 8288 tax forms including what it is, what to look for, and how to make sure there are no surprises when it comes to buying a house from a non-US citizen in the United States.
What is an Form 8288?
An 8288 tax form is a tax form that tells the IRS how much money you are paying in taxes when you buy a house in the USA from a foreign owner. The foreign owner can be a single person, a group of investors, or a corporation. As you submit your payment and taxes, the 8288 tax form is included with it, and so is the 8288-A and possibly the 8288-B.
When do I use form 8288-A and form 8288-B?
You will need to use the 8288-A form after you fill out form 8288. The 8288-A form is used by the IRS to show how many people are selling the house to you and how much each person will owe in taxes.
For example if a husband and wife, or a group of three real estate investors own the property, the 8288-A tax forms will show how much each individual person will be paying in taxes. Once this is completed there is an 8288-B, but this form is not always required.
The 8288-B is a great option if you would like to reduce or eliminate the FIRPTA tax that you have to pay. Although it is not guaranteed you’ll get a reduction, or the form will be accepted, it doesn’t hurt to try. Just keep in mind that the IRS prefers that you apply for this deduction at least 90 days prior to the closing date of the sale.
Are there exemptions to filling out Form 8288?
Yes, there are exemptions to the 8288 tax form including when:
- The seller is a US citizen
- The seller has already paid the tax
- You have a withholding certificate from filling out the 8288-B form
- You are buying a personal residence for yourself for $300,000 or less
When is Form 8288 due?
Form 8288 is due within 20 days of your home sale. However, if you filled out a 8288-B form and it is still pending, then Form 8288 is not due until 20 days after the IRS issues that certificate to you.
Is there a penalty for not filing Form 8288?
Yes, there is a penalty if you do not file Form 8288, and you should have. The IRS will collect the tax from you plus the interest between when the tax was due and when you pay the tax. The IRS can also fine you up to $10,000.
Are there any reduced rates for withholding?
Yes there are reduced rates for withholding as long as the new owner will occupy the home as their primary residence and the amount realized is less than $1 million, you could be eligible for a reduced rate. Normally you are taxed at 15% of the amount realized, but if the buyer confirms they will be owner occupants, then you could get taxed at 10%.
How do I complete Form 8288?
To complete tax form 8188, follow these steps:
- Write your name in capital letters in the first section.
- In the second section, write your street number and address. Do use a PO Box number in this part.
- Next, write your city, town, province, state, and country name.
- In the fourth section, describe the location of the property. Do not list the exact address of the property here, but you can explain the street location.
- The next section contains boxes for the Date of Transfer. Fill out the next box if you have attached Form 8288-A.
- The section after contains the amount withheld. Be sure to check the correct boxes for your situation.
- Lastly, write down the amount withheld in the box with number 7.
And now you know what the 8288 tax form is, how the 8288-A form is used, and the benefits of filling out an 8288-B.