Oregon Form 243: Real Estate Sale Withholding Rules
Navigate Oregon's real estate withholding tax for non-resident sellers. Understand the requirements for managing state tax obligations during a property sale.
Form OR-18-WC is used for reporting and remitting income tax withholding from the sale of Oregon real estate by non-resident individuals and entities. This process ensures the state collects potential income tax from property transactions involving sellers who do not reside in Oregon. The withholding is a prepayment of the income tax that may be due on the gain from the sale, not a final tax. The responsibility for this action falls to the party facilitating the transaction’s close.
Understanding the Withholding Requirement
The state’s withholding requirement applies when an interest in real property located in Oregon is sold or transferred by a non-resident. A non-resident is defined as an individual who is not domiciled in Oregon and does not maintain a permanent place of abode within the state. For entities, it includes corporations, partnerships, or trusts that are not organized or domiciled in Oregon. The rule covers various forms of real property interests beyond simple home sales.
The legal obligation to withhold and remit the funds to the Oregon Department of Revenue rests with the authorized agent handling the closing. This is most commonly the escrow company, but it can also be a title company or an attorney responsible for closing the sale. This agent is required to collect the calculated withholding from the seller’s proceeds at the time of closing. The closing agent manages the disbursement of funds and ensures compliance with state tax law.
This withholding mechanism is designed to capture state income tax from non-residents who might otherwise have no other filing obligation in the state. The amount withheld serves as a security for the seller’s future tax obligations. It ensures that the state receives its portion of the income generated from assets located within its borders.
Information and Calculations for Form OR-18-WC
To complete Form OR-18-WC, the closing agent must gather specific information from the seller and the transaction. This includes the seller’s full name, current mailing address, and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Information about the buyer, the property’s legal description and address, the closing date, and the total consideration—the gross sale price—are also necessary.
The amount to be withheld is calculated as the smallest of three possible amounts: 4% of the consideration, 8% of the taxable gain on the sale, or the total net proceeds being distributed to the seller. The closing agent will determine the correct amount. To allow the withholding to be based on the gain, the seller must provide the necessary information to the closing agent before closing.
Filing Form OR-18-WC and Next Steps for the Seller
The closing agent must submit the completed form, along with the withheld payment, to the Oregon Department of Revenue within 30 days of the property’s closing date. The agent is responsible for ensuring the timely remittance of both the form and the funds, relieving the seller of this immediate task.
Upon filing, the closing agent provides a copy of the submitted Form OR-18-WC to the seller. This document serves as proof of the tax prepayment. The seller must retain this copy for their records and for use when preparing their annual state income tax return.
When filing their Oregon non-resident income tax return (Form OR-40-N for individuals), the seller must attach the copy of Form OR-18-WC they received. This allows them to claim the withheld amount as a credit against any Oregon income tax they owe for that year. If the withholding exceeds their total tax liability, they will be entitled to a refund of the difference.
Exemptions from Withholding
Sellers may be exempt from the withholding requirement under specific circumstances. Common situations that qualify for an exemption include:
- The property sold was the seller’s principal residence, meeting the ownership and use tests in the Internal Revenue Code.
- Sales that result in a loss rather than a gain.
- Transactions where the seller is an Oregon resident.
- Certain tax-deferred exchanges.
To prevent withholding at closing, the seller must claim their exemption. This is done by completing and signing the written affirmation section of Form OR-18-WC, certifying that they meet one of the specific exemption criteria.
The completed Form OR-18-WC, including the exemption certification, must be delivered to the closing agent before the closing date. If the form is not provided before closing, the agent is required to proceed with the withholding. The seller would then have to claim the full amount back when filing their Oregon tax return.