Non-Resident WV Home Sales Tax
July 7, 2008
If you own real property (house, condo, etc) in West Virginia and you're not a full time resident, when you sell your property you'll likely have to pay a WV State tax (similar to a capital gains tax). This tax is in ADDITION to the normal capital gains you pay Uncle Sam for non primary resident sales. Check out publication TSD-389 at the link below.http://www.state.wv.us/taxrev/taxdoc/tsd1.htm
Have any of you had any dealings with this new WV tax? The fees started January 2008. I've been told they did this since so many non-resident people were coming in, making money on property, and WV wasn't getting anything in return.
I'm not sure this is a new tax. The publication you cite describes a new withholding requirement -- that funds to satisfy the state capital gains tax must be withheld (and paid to the state) from the proceeds of any real estate sale by a non-resident. Withholding is a mechanism to ensure that taxes get paid -- by taking the money at the time of the transaction, not waiting to the end of the year and hoping that the person who owes that tax files a return and pays the tax.
Most states impose capital gains taxes on real estate transactions by both residents and non-residents. I do not know if WV does, but it seems likely to me. The problem is that non-residents generally don't file state tax returns, so that without a withholding requirement, the state would have to search through property sales records each year, research what was paid for the property in prior years by the seller, and then go after those sellers who didn't file a state tax return to pay their cap gains tax. (And even some property owners who sold for more than they paid won't owe cap gains tax because of improvements made during their ownership.) It is much easier on the state to impose a withholding requirement, even though it is annoying to us non-resident property owners in WV.
Thanks for the additional information.
As a closing attorney here in the Davis/Canaan area I've dealt with this a lot this year because many of the owners here are out of state residents.
As mentioned, its not a new tax, just that its now being collected at closing. Its either 2.5% of your proceeds at closing, or 6% of your estimated capital gains on the property.
Many are just telling me that their estimated capital gains is zero so no tax is collected at all. And those who do pay the tax at closing can apply for it to be refunded by the state.
I do closings in Maryland too, and their withholding is almost three times as much, so it could be worse.
If you're out of state and do a VA or MD state tax, how would you apply for the refund from WV if you did pay the withholding tax?
Also - thanks for the info.
Jonjon can probably provide a better answer, but basically you'd file a state tax return in WV, showing that your tax obligation to WV is less than what you actually paid to WV. Then you'd get a refund from the state of WV just like when your regular tax returns show that you're due a refund.
Worth noting, though, that being out of state does not get you out of paying the WV cap gains tax if you sell WV property at a profit. WV taxes that sale because the property is in WV, not dependent on where the owner resides. You might find that your state of residence (eg VA) would also seek to tax that capital gain -- if so, then a bunch of complex state tax rules governing how much you owe and to whom would come into play. Way beyond my level of knowledge, unfortunately.
One of my neighbors is literally moving to Snowshoe so they can be exempt from the taxes, especially the Federal. Sort of a complex issue, but both federal and state do exempt a certain level of capital gains in the selling of a house.
Thanks to everyone for the comments - this is a big help.