Even where residential use requirement is met, that doesn't alleviate withholding requirements in a case where the property sold for over USD $300,000 but each taxpayer sold under $300,000.
Interesting, Code § 1445 (5)(B) is actually clearer than the regulation on this point, b/c the code says “realized for the property”, while Reg § 1.1445-2(d)(1) says “realized on the transaction”.
While from the Reg alone, I was inclined toward looking at the aggregate purchase price and not the amount realized per taxpayer and say that the Reg, when stating "the amount realized on the transaction" means just that. However, with the Reg using “Transaction“ one could argue that "the amount realized on the transaction" means on the transaction per each taxpayer. So, that Reg language alone isn't conclusive, at least to me.
In contrast, that argument can’t be made to say that “realized for the property” means per each taxpayer.
Reg § 1.1445-2(d)(1)
Purchase of residence for $300,000 or less. No withholding is required under section 1445(a) if one or more individual transferees acquire a U.S. real property interest for use as a residence and the amount realized on the transaction is $300,000 or less.