The disposition of a U.S. real property interest by a foreign person (the seller) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding.

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General Rules for IRS

 

The IRS requires the escrow co. must withhold 15% of the sales price on the sale of United States real property interests for foreign persons (on sale above $1,000,000), and either 15% or 10% on sale between $300,001 and  $1,000,000 and either 15% or $0 for sales of $3000,000 and under. The lower withholding amount at both levels; requires the buyer to purchase the property with the intent to use as a residence.

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   Buyer intends to use property as a residence     Yes         No

         

             $300,000 and under                                      $0         15%

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             $300,001 - $1,000,000                                  10%       15%

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               Over $1,000,000                                         15%       15%

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General Rules for FTB

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California  requires of withholding 3.3% of the sales price (or 12.3% of the gain optional rate or 0 withholding in loss sale, but the 0 withholding in loss sale is only available if the IRS has issued the foreign seller an individual taxpayer ID number ("ITIN") by the closing date, otherwise seller is stuck with 3.3% sale price.

California requires withholding on: all individuals (even California residents); non-California partnerships; non-California corporations; most trusts; estates.