Transferor's tax return responsibility upon selling real property interest

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The individual transferor of the U.S. real property interest is required to file a Form 1040NR along with Schedule D, Form 6251, and Form 8288-A in order to meet the tax obligation. If the transferor is a corporation, then a Form 1120F with appropriate schedules and Form 8288-A will have to be filed.

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Transferor's tax return responsibility during ownership of real property interest

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If the real property interest is used by the foreign person or entity for the production of income during the taxable year, and it is located in the U.S., IRC Section 871 imposes a 30 percent tax rate or tax treaty rate, if lower. This income is to be treated as, "income not effectively connected with a U.S. trade or business". However, the foreign person or entity can make an Election under IRC Section 871(d) to treat the real property income as income effectively connected with a U.S. trade or business, thus making it subject to graduated tax rates. The required income tax return to file will be a Form 1040NR or 1120F along with the appropriate schedules. In addition to the election, the foreign person or entity will need to file Form W-8ECI with the payer of the income to identify it as being effectively connected income.