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I have recently purchased a house in the U.S. for ~$375,000 (and I'm a U.S. citizen). It was disclosed to me about a week before closing that the sellers were from China. Aside from a few headaches, the sale went through and I've now owned the house about a month.

The other day, I got a letter from the IRS stating that the sellers had filled out Form 8288-B and that the withholding amount had been reduced to ~$10,000. It then said something about being required to fill out From 8288 and 8288-A involving "withholding tax for dispositions by foreign persons".

What are these forms? Why do I have to withhold tax?

Should this have been disclosed to me by my attorney/real estate agent?

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Form 8288 is to report to the IRS withholding of capital gains tax that may be due from the seller. Foreign nationals don't always file tax returns, so they often didn't pay capital gains tax on properties that they sold. Congress decided to make the buyers responsible for this tax so that they would have a better chance of collecting it. There is a penalty against the buyer if that tax is not withheld.

Your attorney should have filed this form on your behalf as part of the closing papers. I think your first step is to look at your copy of the closing papers and see if money was withheld from the sale. There definitely should be disclosure of these requirements before the sale. You should also follow up with your attorney to see whether he has already filed the forms 8288 and 8288-A on your behalf.

If you had purchased for less than $300,000 (and were purchasing for your primary residence), you would not have to file that form, but since the property was under $1,000,000 the withholding rate is only 10% (rather than 15%).

  • My attorney states that the money was withheld from the sale and that they have the money to pay these taxes. The letter says I need to pay the IRS within 20 days of the receipt of this letter. I assume that is under the condition that the sellers do not pay this tax themselves. Is that interpretation correct? – concerned Feb 7 '17 at 15:04
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    No, you have to pay the full amount withheld. The seller can then file the form 8288-B to ask that the withholding be reduced and get their refund from the withholding directly from the Treasury. – NL - Apologize to Monica Feb 7 '17 at 15:07
  • I guess what I'm unsure about is whether this has to be paid from my personal money or if it is to be paid by the money withheld from the sale of the house. Sorry, but this is all very confusing to me and my attorney is kind of terrible. – concerned Feb 7 '17 at 15:17
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    @concerned It should all be paid from the amount withheld at closing time. No worries, it confuses most people. I'm sorry your attorney is terrible; the whole reason he's getting paid is because he is supposed to understand all of this and make it easy on you. – NL - Apologize to Monica Feb 7 '17 at 15:20
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    Thanks so much, this takes a load off my mind. I'll follow up with my attorney about this. – concerned Feb 7 '17 at 15:24

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