How do I get the US tax back from the IRS if I’m selling my DVC from the UK?
Published on June 07, 2024
by Aya Takriti, EA
Aya Takriti, an IRS Enrolled Agent with 10 years of expat tax experience, specializes in US tax preparation, tax planning and tax advice for US citizens and Green Card holders living and working in the Middle East.
Table of Contents
Yes, you can claim it back from the IRS. British sellers of Disney Vacation Club (DVC) memberships are subject to IRS tax under FIRPTA regulations when they sell property in the US.
You can potentially get this tax back or reduce the amount owed by applying for a withholding certificate using IRS Form 8288-B before the sale or by filing a US tax return to claim a refund for overpayment.
What is Disney Vacation Club (DVC) and why is it popular among British investors?
Disney Vacation Club (DVC) is a timeshare program operated by Disney, offering ownership interests in resorts and properties. It promises magical vacations year after year, making it attractive to British investors.
The appeal lies in owning a part of the Disney experience and the potential for rental income and property value appreciation. When British nationals sell their DVC property, they encounter US tax regulations, specifically FIRPTA.
What is FIRPTA?
FIRPTA is a US tax law that taxes foreign persons selling US real property interests. Its goal is to ensure foreign investors pay US taxes on gains from selling US real estate, similar to US citizens and residents.
For foreign sellers, including British nationals, FIRPTA means that any gain from the sale of US real property is subject to US income tax. Typically, the buyer withholds 15% of the property’s sale price and pays it to the IRS as tax for the seller.
This withholding acts as an advance on the seller’s potential tax liability from the sale. However, the actual tax due may differ, requiring the seller to file a US tax return to reconcile the difference.
I want to know more about US taxes abroad
Why does the IRS withhold 15% tax from non-US sellers on real estate transactions?
The IRS withholds a 15% tax from non-US sellers to ensure that taxes owed on the sale of US property by foreign individuals are collected. This withholding secures tax payment, given the challenge of collecting taxes from individuals who may not have other US tax obligations and may not reside in the US.
The withheld amount is provisional. Sellers can file a US tax return the following year to report the sale, calculate the actual tax due, and apply for a refund if the withheld amount exceeds their tax liability.
How do I reclaim withheld tax as a non-US citizen?
To reclaim tax withheld from the sale of US property as a non-US citizen, you must file IRS Form 8288-B and your Property Sale Contract with the IRS. You will also need an Individual Taxpayer Identification Number (ITIN) to complete Form 8288-B.
Steps to reclaim withheld tax:
- Obtain an ITIN: Apply using Form W-7 if you do not have one.
- Complete Form 8288-B: Fill out this form to apply for a withholding certificate.
- Submit Property Sale Contract: Include the contract with your Form 8288-B submission.
- File a US Tax Return: After the sale, file a US tax return to reconcile the actual tax liability and claim any refund if the withheld amount exceeds the tax due.
Why do British sellers need an ITIN when selling US property?
British sellers need an Individual Taxpayer Identification Number (ITIN) to comply with IRS requirements for reporting and paying taxes on US property sales. An ITIN is essential for non-US citizens who need to file a US tax return but are not eligible for a Social Security Number (SSN).
How do you apply for an ITIN?
To apply for an ITIN, you need to complete Form W-7 (Application for IRS Individual Taxpayer Identification Number). This form should be submitted along with your tax return (Form 1040-NR) and proof of identity documents.
Complete the ITIN application form here:
https://www.expatustax.com/irs-itin/
What is Form 8288-B and how does it help?
Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests) allows sellers to request a reduced withholding rate based on the estimated tax liability of the sale, instead of the standard 15% rate. This can reduce the amount of tax withheld at the time of sale.
Can the IRS refund the tax to a UK bank account?
No, the IRS cannot send funds directly to UK bank accounts. If you don’t have a US bank account, the IRS will mail a cheque to your UK address. However, many UK banks no longer process US government cheques. It’s advisable to contact your bank to confirm your options.
If you can’t find a UK bank to process your cheque, consider opening an account with Wise. Within your Wise account, you can open a US dollar savings account with a US Routing Number and US Account Number.
Open a Wise account here: Wise
Why should British sellers consider professional tax advice when selling DVC memberships?
FIRPTA regulations are complex and may have various exceptions and conditions. A tax professional can help you understand these rules and optimize your tax position.
Tax advisors can identify strategies to minimize FIRPTA withholding and potentially increase net proceeds from the sale. They can assist in preparing and filing Form 8288-B, advise on the timing of the application, and ensure all necessary documentation is accurate.
Additionally, incorrect reporting or failure to comply with FIRPTA requirements can result in penalties. A tax advisor can help ensure compliance and avoid costly mistakes.
