Tax Management for Foreign Investment in US Real Estate
Find out everything you need to know about taxes on foreign investment in US real estate or contact us today for a free consultation.
Navigate Taxes on Foreign-Owned Real Estate With Ease
There are many great reasons to invest in US real estate. However, when it comes to filing your taxes, there are certain things that you will need to consider if you are a foreign investor. You may face a higher tax rate for this income and may not be entitled to the same incentives as US residents, US citizens, and US nationals. This can add an additional level of confusion when filing your taxes.
At International Tax Consultants, we can help you accurately determine how much you owe and help you file your taxes to ensure they are done properly. This can significantly reduce your risk of incurring additional IRS penalties or fees. If you are a foreign investor and own real estate in the United States, contact us today at 866 829-4685 for a free consultation.
What You Need to Know as a Foreign Investor
If you are a non-resident who is also not a US citizen or US tax resident, you are most likely considered a foreign investor. Keep reading to find out what you need to know.
How Do I Know if I Owe Taxes on My Foreign-Owned Real Estate?
The best way to determine if you owe taxes on your foreign-owned real estate is to contact a foreign tax accounting consultant every year before filing your taxes. This is because IRS regulations are subject to change.
However, in general, you can expect to owe taxes if you generate an income from your real estate investments or if you sell your real estate and generate a profit on the sale.
What Does the IRS Consider Income From a Real Estate Investment?
Any form of income generated from your real estate holding may be counted as taxable income. According to the IRS, this includes, but is not limited to:
- Royalties from various natural resources based on the land
- Rent or property lease fees
- Any other income generated from your property
Revenue generated from the sale or exchange of a property may be considered capital gains and taxed at a different rate than ordinary income.
Who Is Considered a Foreign Investor?
IRS Publication 515 provides an in-depth summary of individuals and entities considered foreign investors. These entities include, but are not limited to:
- Individuals who are non-citizens or non-nationals and non-residents
- Foreign-owned corporations and partnerships
- Foreign governments
- International organizations
- Foreign estates and trusts
At International Tax Consultants, we can help you determine if you fall into any of these categories.
What Is the Income Tax Rate for Foreign Investors?
The income tax rate for foreign investors is currently a flat 30% withheld from the source. However, you can determine how this income is treated by the IRS. Under Internal Revenue Code Section 871(d) (OR Section 882(d) if the property is owned by a US entity), you may elect to treat the income from your US real estate as income connected to a business or trade. This allows you to deduct certain operating expenses from your gross income and can substantially lower your tax burden. There are some limitations, and you can only claim this special election if the property is otherwise not tied to your business or trade.
It is strongly advised that you seek professional legal consultation prior to the making of any tax elections such as this. International Tax Consultants can provide guidance and assistance in helping you determine if the tax election would be beneficial under your circumstances and can assist with the preparation of Section 871(d) election.
What You Need to Know About US Tax Treaties
The United States has forged tax treaties with several countries. If you are a citizen of one of these countries, there may be a lower tax rate available for the ownership of real estate as an investment. International Tax Consultants can help you determine what that rate is and if it can apply to your real estate holding.
How Is Capital Gains Tax Calculated?
If you profit from the sale of a foreign-owned real estate investment, you may be liable for capital gains tax, which is different than income tax. You will be taxed at the current capital gains tax rate, which may be higher for any property held for less than 12 months. Capital gains tax rates are established by the US Legislature (Congress) and are subject to periodic change dependent upon political considerations.
Other Tax Considerations for Foreign Real Estate Investors
Upon the sale of the real estate, there will likely be a Fifteen (15%) Percent withholding tax imposed upon the seller (the foreign investor) under the Foreign Investment in Real Property Act (“FIRPTA”) Regulations under most circumstances with limited exceptions.
FOR FURTHER INFORMATION FROM INTERNATIONAL TAX CONSULTANTS ON FIRPTA, CLICK HERE.
In addition to capital gains and/or income taxes, you may also be liable for state taxes depending on the location of your property, so it is always best to consult with a tax professional to ensure that you meet your obligations to the state as well as the federal government.
How Do I File Taxes on Foreign-Owned US Real Estate?
Step 1: Obtain an ITIN
The first step to filing your taxes for foreign-owned US real estate is to obtain an Individual Taxpayer Identification Number (ITIN) if you do not have one. You can do this by mail, at an in-person IRS location, or through an IRS-authorized acceptance agent using an IRS Form W-7.
Step 2: Initial Consultation
Because the US has different treaties with different countries and each state has its own tax laws, it’s always best to work with a trusted tax advisor on matters related to foreign-owned real estate. Once you have your ITIN, we can set up a consultation and review your holdings to determine your tax liabilities.
Step 3: File an IRS Form 1040-NR
After we have reviewed your assets, we can help you prepare and file an IRS Form 1040-NR for these holdings. Then all you have to do is sign your tax form and be on your way. Contact us today at +1 (242) 393-0705 if you need additional assistance or to set up a consultation.
What Our Clients Are Saying
“My wife and I have a wonderful professional relationship with ITC. Very satisfying and rewarding. ITChas been very patient, thorough and responsive. I recommend them to anyone seeking advise on Asset Protection, Tax and Estate Planning and Real Estate Investing”.
How Much Does It Cost?
At International Tax Consultants, we are a full-service international accounting firm. We can handle your tax liabilities for foreign investments in US real estate individually or as part of a larger service. Contact us today, and we will be happy to create a service tailored to your needs.
File Your Taxes on a Foreign Investment in US Real Estate Today
If you are a non-US citizen with a foreign real estate investment and need assistance with your taxes, we are here to help. Contact us today for expert tax guidance on all your foreign investments.
Call 866-829-4685