Rental property 1/2 owned by non resident alien

[thetaxman2200]

Good Afternoon,

I have a couple who sold a rental property they have owned for 21 months, I believe they need to withhold 20% of the sale price! I did however think after 18 months this no longer applied. I can not find any good answers on this. I am hoping some of the fine tax prepares would some good advice on this.

Thank you in advance.

[thetaxman2200]

I however forgot to mention his wife is a American who lives in Germany with the Non Resident Alien.

[Burke]

Are they filing a joint return? It would definitely be reported on the return as a capital gain, even if they filed MFS, in which case 50% to each. Not sure what you are getting at as "withholding" or the 18-month period you are referring to. Also, clarify the statement "with the Non Resident Alien." If she is an American citizen, she is not an alien. But she may file a NR return if she files MFS.

[thetaxman2200]

I mentioned the 20% because title company said they had to withhold that form the sale price! I thought after 18 months they did not have to. They will file MFS and I agree each would get 50% of the gain.

Thank you

[Burke]

Is the title company imposing FIRPTA rules? You said she was an American (citizen I assume), not a "Foreign Person." FIRPTA withholding rate is 15% at closing for foreign persons, but this does not apply to US citizens. She can sign a certification that she is not subject to this rule, but she shouldn't have to. However, after re-reading your post a couple of times, it appears that he IS a non-resident alien (not a US citizen) and that they both live in Germany, so FIRPTA would apply to him.

Also, many states impose withholding on a non-resident (whether they are a US citizen or not) unless they can prove that the transaction is not taxable. In this case, you said it is rental property, so unless they can document a loss, the state-of-nexus rules on withholding would apply. Not all states have them, but Delaware does. See Form 5403. You did not specify whether this 20% was federal or state withholding, or a combined amount. I am unfamiliar with any 18-month rule, and am not sure what that would have to do with it.

[Burke]

Another thought. If the title company is withholding 20% (to whatever entity) and the clients are filing separately, the title company needs to clearly specify under whose SSN this is being reported.