Payment to 3rd party & Tax

[cay7man]

Planning to pay (large sum) the seller who lives in US for the purchase of the land aboard. What sort of tax issues I will have
to deal with? Obviously I don't want to pay any tax since the payment will be made from savings which were already taxed.

 

[Taxing Matters]

Where do you currently live? Are you a citizen or permanent resident (i.e. greencard holder) of the U.S. or an alien who meets the substantial presence test and thus considered a resident of the U.S.? Where is the land that you are purchasing and what will you do with it?

 

[cay7man]

I live in US and a US citizen. Land is in India and planning to build a house but in the future the plan may change.

 

[Taxing Matters]

I live in US and a US citizen. Land is in India and planning to build a house but in the future the plan may change.

Ok, so the seller is in the U.S. and so are you. That means that you will need to file a Form 1099-S with the IRS to report the sale of the property unless U.S. broker or other domestic person handles the closing and will take care of that for you. You need to make sure it gets done. This means you will need to get the information from the seller to complete the form, including his/her SSN or ITIN, name, and address. See the Form 1099-S instructions. There is no tax to pay with this form. Its purpose is to inform the IRS of the sale so that the IRS can be sure the seller pays the tax on any gain he or she realizes on the sale. There is, however, a penalty the IRS may impose on you if you don't file the form. Since there is no cost to you to file it and a penalty if you don't, there is no reason for you not to do it, regardless of how the seller might grouse about it. Keep all the documentation from the closing. You'll need that to establish your basis in the property. That's important to you when you sell the property later on.

 

[cay7man]

Thank you! The titling/registration will be in done in India so how is it possible to file 1099-S?

 

[LdiJ]

Thank you! The titling/registration will be in done in India so how is it possible to file 1099-S?

So this will be a transaction done in India? In that case, we don't have any idea what tax issues may exist.

 

[Taxing Matters]

Thank you! The titling/registration will be in done in India so how is it possible to file 1099-S?

Then as no one at the closing will do the Form 1099-S it will be your responsibility to do it. Use the links to the form and instructions I provided before. To request the seller's SSN or ITIN (whichever the seller has) you use Form W-9. See also the Form W-9 Instructions.

So this will be a transaction done in India? In that case, we don't have any idea what tax issues may exist.

I can't provide any info on any Indian tax issues. But I can provide the information on the U.S. tax aspects of this. And as you know, the U.S. uses a worldwide tax concept, so even though the property is in India, there are certainly U.S. tax issues involved for both seller and buyer since they are both in the U.S. and evidently U.S. citizens or residents.

 

[LdiJ]

Then as no one at the closing will do the Form 1099-S it will be your responsibility to do it. Use the links to the form and instructions I provided before. To request the seller's SSN or ITIN (whichever the seller has) you use Form W-9. See also the Form W-9 Instructions.



I can't provide any info on any Indian tax issues. But I can provide the information on the U.S. tax aspects of this. And as you know, the U.S. uses a worldwide tax concept, so even though the property is in India, there are certainly U.S. tax issues involved for both seller and buyer since they are both in the U.S. and evidently U.S. citizens or residents.

Yes, but he has already been told the US tax issues. We don't have any idea what tax issues there may be in India.

 

[Taxing Matters]

Yes, but he has already been told the US tax issues. We don't have any idea what tax issues there may be in India.

Well, the OP didn't ask about Indian tax issues. I told the OP that typically the lawyer or agent handling the closing would do the Form 1099-S. The OP then said the closing will take place in India so the closing agents are not going to do it and asked how that works, and I answered that. I think you may have thought the OP's reference in the follow-up question about the 1099-S was somehow a reference to something having to do with Indian tax. But that's not the case.

 

[LdiJ]

Well, the OP didn't ask about Indian tax issues. I told the OP that typically the lawyer or agent handling the closing would do the Form 1099-S. The OP then said the closing will take place in India so the closing agents are not going to do it and asked how that works, and I answered that. I think you may have thought the OP's reference in the follow-up question about the 1099-S was somehow a reference to something having to do with Indian tax. But that's not the case.

Bottom line, I was referencing Indian tax issues with my statement. I considered the US tax issues to be already handled.