I’d like to bring to your attention an important tax form required for sellers of homes in Delaware who are not residents of the state.
Though this isn’t an exciting topic, it’s relevant as many of our sellers live out of state and are non-residents that own beach houses as second homes or rental investments.
The form we’re talking about is Form 5403, and to keep it light, I’ll just give you the high-level facts and considerations you need to know:
• You need to file Form 5403 if you are not a resident of Delaware and are selling a non-primary residence.
• The form allows you to report gains on the sale of your investment property and pay taxes due.
• You’re essentially making an estimated tax payment at closing rather than deferring payment until the end of the year.
• While it’s mandatory, it saves you the hassle of paying a big lump sum at tax time.
• The form must be filed by the closing date. A penalty will be assessed if you don’t file Form 5304 and pay the associated tax.
• The form also applies if you own the property as an LLC or corporation.
• Your attorney will submit the tax payment after deducting the amount due from the proceeds.
• The tax rate on gains is 6.6% for individuals/spouses and 8.7% for corporations.
Note that Form 5403 doesn’t apply if you’re a resident of Delaware, if your entity isn’t subject to tax here, if it’s your primary residence, or if the property is in foreclosure. Consult your attorney or tax specialist for help in these instances.
Should you fill out the form yourself?
If you follow the instructions and have all the needed information and documentation, you could certainly figure it out; however, it’s least risky and most convenient to entrust this task to a professional.
It can be challenging to calculate the tax basis, and errors will result in costly penalties. Therefore, it’s prudent to retain a Delaware Certified Public Accountant or Delaware Tax Attorney.
Reach out to me for additional resources or referrals to qualified tax professionals.
Contact me anytime with questions.