Who is a foreign person for the purpose of the mandatory federal withholding? A nonresident alien individual; a foreign corporation; a foreign partnership; a foreign trust; and a foreign estate.
A. Who constitutes a nonresident alien? These are individuals who meets two conditions. They are non US citizens and not legal US residents.
Ex (1). A US citizen living in Paris sells his Los Angeles vacation home- no withholding required on US citizens (no matter where they live at the time of sale).
Ex (2). A Danish citizen has a US work visa, lives and works in San Diego and sells her San Diego home- no withholding on legal US residents.
Ex (3). A Canadian vacationing 5 months a year in the US on a Canadian tourist visa sells her Palm Springs house- 10% withholding required, the Canadian citizen is on a vacation visa in the US and is not a legal US resident.
Ex (4). A Canadian vacationing 5 months a year in the US on a Canadian tourist visa sells her Palm Springs house, also happens to have a social security number from she when worked in the US 5 years ago- 10% withholding required, the Canadian citizen is on a vacation visa in the US and is not a legal US resident, the fact that she has a social security number does not change the fundamental facts that she is not a US citizen nor a US resident at the time of sale.
B. What are the withholding taxes on sale? (think of as security deposits collected at closing to ensure seller pays income taxes (the “real taxes”): The IRS requires the purchaser (really the escrow co.) to withhold 10% of the sales price; 3.3% of the sales price for California state taxes (or 12.3% of the gain optional price).
C. What are the withholding taxes on rent? 30% of each rent payment payable to the non-US citizen/resident should be withheld and to the IRS by the property manager or tenant. The foreign person can remove this requirement by filling out basic IRS forms.