Non-Resident Seller Tax Withholding

Sellers who are not South Carolina residents may be subject to tax withholding which is collected from their proceeds at closing.

South Carolina Code of Laws Section 12-8-580 requires the Buyer to withhold South Carolina income taxes from the Seller. The withholding amount depends on the type of taxpayer (5% for a corporation or other entity and 7% for an individual, partnership, trust, or estate) and the information the Seller provides to the Buyer on form I-290. The Seller must report the gain or loss on the sale on a timely filed South Carolina income tax return. Any excess funds withheld will then be refunded to the Seller.

The closing attorney will help collect these required documents and collect any tax that needs to be withheld. They will then forward it to the South Carolina Department of Revenue.

 
 

Answers to some common questions:

  • What forms need to be completed? Form I-295, the Seller’s Affidavit should be completed to determine if there is withholding and how much. If there is withholding, Form I-290 is completed and sent with the withholding payment.

  • If there are multiple sellers and only one of them is a non-resident, does this apply? The withholding would only apply to the non-resident’s share.

  • What if the property was the seller’s principal residence? Sales of a principal residence where the entire gain amount is excluded under IRC Section 121 are excluded.

  • How much is the withholding? The withholding amount is based on the net proceeds and will not be more that the amount payable to the Seller.

  • Gifts and inheritances that are tax free under IRC Section 102 are excluded.

  • Installment sales are subject to withholding.

Link to Seller’s Affidavit I-295

Link to Withholding form I-290

Examples:

Sales price is $250,000. There are $20,000 in selling expenses. The amount realized is $230,000. The Seller is a corporation, so their withholding rate is 5%. The amount to withhold is $230,000 x .05 = $11,500

Seller completes the Seller’s Affidavit and has the same $230,000 for the amount realized. The Seller has an adjusted basis of $60,000 in the property. The gain is $170,000. The amount to withhold is $170,000 x .05 = $8,500

*Answers and Examples from RR09-13 and current as of July 15, 2022. Information deemed reliable but not guaranteed. Please consult your tax advisor for specific answers and advice.