Tax on "flipping" profit if living outside the US?

[abdibile]

I sold some timeshares which are located in the US and made a small profit compared to the purchase prices (few $100s each, about $2,000 in total).

I am German, live in Germany and have therefore never filed tax documents in the US.

I got paperwork from the closing agencies that states the sales proceeds and say "this is important tax information and is being furnished to the IRS".

Do I have to prepare a tax return in the US because of these timeshare sales although I will probably not have to pay taxes as the amount is so small?

Thanks for any hints wher to look this up or whom to ask (preferably cheap information, I would not want to pay hundreds to a US tax accountant).

Thanks!

 

[Dave H]

I sold some timeshares which are located in the US and made a small profit compared to the purchase prices (few $100s each, about $2,000 in total).

I am German, live in Germany and have therefore never filed tax documents in the US.

I got paperwork from the closing agencies that states the sales proceeds and say "this is important tax information and is being furnished to the IRS".

Do I have to prepare a tax return in the US because of these timeshare sales although I will probably not have to pay taxes as the amount is so small?

Thanks for any hints wher to look this up or whom to ask (preferably cheap information, I would not want to pay hundreds to a US tax accountant).

Thanks!

You are subject in the United States to a tax act called FIRPTA which is the Foreign Investment in Real Property Tax Act. FIRPTA requires the closing company and the buyer to with hold 10% of the purchase price toi forward within 20 days of closing to the IRS. You might want to go to www.irs.gov and do a search on FIRPTA to see if you can file for a refund, but the law requires it to be withheld

 

[Conan]

You are subject in the United States to a tax act called FIRPTA which is the Foreign Investment in Real Property Tax Act. FIRPTA requires the closing company and the buyer to with hold 10% of the purchase price toi forward within 20 days of closing to the IRS. You might want to go to www.irs.gov and do a search on FIRPTA to see if you can file for a refund, but the law requires it to be withheld

The other side of the coin being, if this is a sale that already happened and somehow the FIRPTA tax was not withheld, then you may not feel obligated to file--as noted above it was the US buyer who had the duty to collect and pay the 10% to the US authorities.

If the tax was withheld, your choice is to file Form 1040NR reporting the actual gain and requesting a refund of the excess portion of the withheld funds, or to do nothing and leave the 10% in the hands of the US Treasury.

 

[memereDoris]

I sold some timeshares which are located in the US

Thanks for any hints wher to look this up or whom to ask (preferably cheap information, I would not want to pay hundreds to a US tax accountant).

Even if you file a US (non-resident) return for the gain on the property, it is very simple to do yourself. All the information is readily available on the IRS site.

Germany has a tax treaty with the US, so you don't have to pay taxes twice on the same income. This information is also available at the IRS site.

I'm not sure how the tax system in Germany works but the US system is very easy to work with. You should have no problem researching all the info you need on the site and if you have a problem there is always someone ready to answer your questions. The phone numbers are also on the IRS site.

Good luck.

 

[Mel]

The other side of the coin being, if this is a sale that already happened and somehow the FIRPTA tax was not withheld, then you may not feel obligated to file--as noted above it was the US buyer who had the duty to collect and pay the 10% to the US authorities.

If the tax was withheld, your choice is to file Form 1040NR reporting the actual gain and requesting a refund of the excess portion of the withheld funds, or to do nothing and leave the 10% in the hands of the US Treasury.

The obligation to withhold rests with the closing company and the buyer, but the obligation to PAY rests with the seller. Not that the IRS is likely to make a fuss, given the small amount of tax involved (10% of the $200 gain), but if they choose to try to collect, you are the one they will expect to pay.

Probably not worth it just to avoid $20 of tax, but if you look at the maintenance fees you've payed of the years, any capital improvements can be added to your cost basis, and might wipe out that capital gain completely - but again, is it worth the time to do the research just to avoid paying $20 in taxes?

 

[Dave H]

The obligation to withhold rests with the closing company and the buyer, but the obligation to PAY rests with the seller. Not that the IRS is likely to make a fuss, given the small amount of tax involved (10% of the $200 gain), but if they choose to try to collect, you are the one they will expect to pay.

Probably not worth it just to avoid $20 of tax, but if you look at the maintenance fees you've payed of the years, any capital improvements can be added to your cost basis, and might wipe out that capital gain completely - but again, is it worth the time to do the research just to avoid paying $20 in taxes?

it is not calculated on gain, it is calculated on PURCHASE PRICE, so if someone sold for $2000, the tax is $200 and the penalty is worse, they will collect at somepoint, would not want to be the buyer who comes back to the closing agent and says why did you not do your job and handle this as part of the closing?

 

[abdibile]

I talked to the closing companies (three of them and only reputable ones not the eBay kind) and everyone told me that my sales are not subject to taxation adn I do NOT have to file a tax return.

Could it be that there is a special provision für foreigners?

 

[Conan]

I talked to the closing companies (three of them and only reputable ones not the eBay kind) and everyone told me that my sales are not subject to taxation adn I do NOT have to file a tax return.

Could it be that there is a special provision für foreigners?

FIRPTA is the special provision for foreigners - - the US buyer was obligated to send 10% of the purchase price to the US government. You are free to file a return and claim a refund, or you can do nothing.

 

[Dave M]

Unless there is some unique information about your situation that isn't obvious to us, the sale is definitely subject to the 10% withholding, as Conan states. See this link for some more info and for a separate link to the list of exceptions to the withholding requirement.

If the buyer doesn't withhold, that buyer (or the closing company) will be responsible for the tax in the unlikely event that the IRS (the U.S. taxing authority) becomes aware of the omission.

 

[abdibile]

After lots of timeshares sold I finally received a letter from the IRS.

It is a Form 8288-A Copy B for a really small amount withheld plus a cover letter which reads "A foreign individual must file a Form 1040NR ..."

Does this mean I am obliged to file a tax return 1040NR? Independent from me wanting to reclaim the withheld amount?

Or can I just do nothing and leave the small amount withheld with the IRS?

Thanks!

 

[Conan]

Good news: You do not need to file anything in the US. Casual sales of a few timeshare units does not constitute what the tax law calls a trade or business, nor do they create NEC-type reportable income.

Who Must File

File Form 1040NR if any of the following four conditions applies to you.
1. You were a nonresident alien engaged in a trade or business in the United States during 2011.
.....
2. You were a nonresident alien not engaged in a trade or business in the United States during 2011 and:
a. You received income from U.S. sources that is reportable on Schedule NEC, lines 1 through 12, and
b. Not all of the U.S. tax that you owe was withheld from that income.

3. You represent a deceased person who would have had to file Form 1040NR.

4. You represent an estate or trust that has to file Form 1040NR.

http://www.irs.gov/instructions/i1040nr/ch01.html#d0e556
http://www.irs.gov/instructions/i1040nr/ch02.html#d0e8024