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Delaware Real Estate Law Update: Tax Withholding Form Issued for All Sellers of Delaware Real Estate

December 28, 2010

As we reported several months ago, new legislation, effective for tax periods after December 31, 2010, requires non-resident sellers of Delaware real estate to report and remit an estimated state income tax on capital gains realized from the sale of that real estate.  This payment must be made before the deed for the sale can be recorded.  For purposes of this legislation, a non-resident seller includes not only an individual or a foreign corporation (meaning a corporation that is not incorporated in Delaware or registered in Delaware as a foreign corporation), but also a non-resident pass-through entity (for example, a limited liability company) that has one or more non-resident individuals as partners or members. 

The Delaware Division of Revenue has recently issued the form for reporting such transactions, Form 5403 Real Estate Tax Return Declaration of Estimated Income Tax.  Although the legislation addresses non-resident sellers of Delaware real estate, this new form must be completed for all conveyances of real property and presented at the time of recording of the deed for that conveyance, even if the seller is a resident and not subject to the withholding of the tax.  If the seller is subject to the withholding obligation, the estimated tax must be paid with the form.

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Form 5403 -- Real Estate Tax Return Declaration of Estimated Income Tax (2011 DE)

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