Withholding of income tax on sale or exchange of real estate by nonresident individuals

# (a)

Definitions. — (1) “Director” means the Director of the Division of Revenue or the Secretary of Finance of the State.

(2) “Nonresident individual” means, for purposes of this section, an individual who is not a resident individual of this State for the individual’s entire tax year.

(3) “Recorder” means the official with the duty to record deeds and similar instruments.

(4) “Transfer under a deed in lieu of foreclosure” includes all of the following:

a. A transfer by the owner of the property to the following:

# 1.

With respect to a deed in lieu of foreclosure of a mortgage, the mortgagee, the assignee of the mortgage, or any designee or nominee of the mortgagee or assignee of the mortgage.

# 2.

With respect to a deed in lieu of foreclosure of any other lien instrument, the holder of the debt or other obligation secured by the lien instrument or any designee, nominee, or assignee of the holder of the debt secured by the lien instrument.

b. A transfer by any of the persons described in paragraph (a)(4)a. of this section to a subsequent purchaser for value.

(5) “Transfer under a foreclosure of a mortgage or other lien instrument” includes the following:

a. With respect to the foreclosure of a mortgage, all of the following:

1. A transfer by the sheriff or other party authorized to conduct the foreclosure sale under the mortgage to 1 of the following:

A. The mortgagee or the assignee of the mortgage.

B. Any designee, nominee, or assignee of the mortgagee or assignee of the mortgage.

C. Any purchaser, substituted purchaser, or assignee of any purchaser or substituted purchaser of the foreclosed property.

2. A transfer by any of the persons described in paragraphs (a)(5)a.1.A. and (a)(5)a.1.B. of this section to a subsequent purchaser for value.

b. With respect to the foreclosure of any other lien instrument, all of the following:

1. A transfer by the party authorized to make the sale to 1 of the following:

A. The holder of the debt or other obligation secured by the lien instrument.

B. Any designee, nominee, or assignee of the holder of the debt secured by the lien instrument.

C. Any purchaser, substituted purchaser, or assignee of any purchaser or substituted purchaser of the foreclosed property.

2. A transfer by any of the persons described in paragraphs (a)(5)b.1.A. and (a)(5)b.1.B. of this section to a subsequent purchaser for value.

# (b)

Estimated tax return; alternative forms. —

Every nonresident individual who sells or exchanges Delaware real estate shall file with the Recorder 1 of the following:

# (1)

A “Declaration of Estimated Income Tax” for the quarter in which the sale or exchange is settled, applying the highest marginal rate under § 1102 of this title to an estimate of the gain recognized on the sale or exchange.

# (2)

An alternative form prepared by the Director to calculate income tax at the highest marginal rate under § 1102 of this title, applied to the difference between the total amount realized by the transferor and the net balance due at the time of settlement of all recorded liens encumbering the real estate.

# (3)

a. An alternative form prepared by the Director to declare under penalties of perjury 1 of the following:

1. That the sale or exchange of real estate is exempt from recognition of capital gain with respect to the tax year of the sale or exchange.

2. That all or a part of the gain realized that may be excluded from income with respect to the tax year of the sale or exchange.

3. That the sale or exchange of real estate is 1 of the following:

A. A transfer under a foreclosure of a mortgage or other lien instrument.

B. A transfer under a deed in lieu of foreclosure.

b. With respect to a claim of exemption or exclusion under paragraph (b)(3)a.1. or (b)(3)a.2. of this section, a statement of the facts and a citation to the provision of the Internal Revenue Code (Title 26, U.S.C.) relied upon for such exemption or exclusion must also be included in the declaration.

# (c)

Due date of estimated tax return, payment. —

The return or form provided for in subsection (b) of this section, and the estimated tax reported due on such return or form, shall be remitted with the deed to the Recorder before the deed shall be recorded. Such payment shall be withheld from the net proceeds of the sale. To the extent that the sale does not result in net proceeds being available for the payment of the estimated tax, the Recorder may accept the form without payment, upon receipt of confirmation from the closing attorney that no funds are available for payment of the tax and that no funds were distributed to the seller.

# (d)

Payment credited to transferor. —

The estimated tax remitted under subsection (c) of this section shall be deemed to have been paid to the Director on behalf of the nonresident transferor and the nonresident transferor shall be credited for purposes of §§ 1169 and 1170 of this title as a payment made on the date remitted to the Recorder.

# (e)

Persons or entities not liable for payments. —

Neither the transferee, title insurance producer, title insurer, settlement agent, closing attorney, lending institution, nor the real estate agent or broker in a transaction subject to this section shall be liable for any amounts required to be collected and paid over to the Recorder or Director under this section.

# (f)

Tax not imposed; lawful collection of taxes not prohibited. —

This section does not:

# (1)

Impose any tax on a transferor or affect any liability of the transferor for any tax; or

# (2)

Prohibit the Director from collecting any taxes due from a transferor in any other manner authorized by law.