Brian Funk’s Unofficial Guide to the Universe for Delaware Settlement Attorneys on the New Delaware Form 5403 for Non-Resident Withholding on Sale of Real Estate

What is the purpose of withholding income tax on the sale of real property on non-residents?

  • Income tax is imposed on gain from the sale of real property (unless it’s exempt). In English, the gain is calculated by taking the amount realized and subtracting it from the adjusted basis. It’s obviously harder for Delaware to collect from folks who live out-of-state (than those in-state) so we’re now being required to collect an estimated payment at the time of settlement.
  • It’s important to remember that this is a Delaware law—and it has nothing to do with the separate, federal Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) withholdings for foreign persons.

When did the new Form 5403 take effect?

  • The new Form 5403 took effect on January 1st, 2019.
    • Who must fill out the Form 5403?

    • Everyone, but the income withholding part is only mandatory for non-residents who do not qualify for an exception.
    • Rare Exceptions:
      •  The recording of a ‘commercial lease’ does not require a Form 5403. However, the recording of long-term ‘residential lease’ does require a Form 5403 (i.e. Town of Arden, Historic City of Lewes).

Download the full article here:

Brian Funk’s Unofficial Guide to the Delaware Form 5403 Non-Resident Withholding Changes (June 2022 edition)