Foreign Owners of U.S. Rental Property
Disclaimer: We are not tax professionals. This information is a only a brief overview. Please consult your tax professional for advice concerning the Foreign Investment in Real Property Tax Act (FIRPTA).
All foreign investors owning U.S. rental property are responsible for paying taxes on any and all rental income they earn in the U.S. regardless of any tax treaties that may exist.
You can either pay a flat tax of 30% of your gross rental income, or elect to file an annual US tax return and reduce your taxes by claiming deductions relating to ownership and management of the property. (I.e. Property Taxes, Insurance, Management Costs, etc.)
With either method of taxation, you must have an Individual Taxpayer
Identification Number (ITIN).
Obtaining a Taxpayer ID
As soon as possible, you need to obtain a U.S. 'Individual Taxpayer Identification Number' (ITIN) for each owner of the property (Each person listed on the property deed). The application is done with IRS Form W7, and you must provide original certified identification documents.
Get IRS Form W7 HERE: http://www.irs.gov/pub/irs-pdf/fw7.pdf
Get IRS Form W7 Instructions HERE: http://www.irs.gov/pub/irs-pdf/iw7.pdf
The IRS has 'Certified Acceptance Agents' who are authorized to certify your original documents and process the application. The W7 form may look easy and you may want to process it yourself, but save yourself time and visit an agent. Certified Acceptance Agents are located worldwide. Contact an agent in your country of residence. It normally takes 46 weeks for your W7 to be processed by the IRS.
Find Certified Acceptance Agents HERE: http://www.irs.gov/Individuals/Acceptance-Agent-Program
Upon receiving your ITIN number from the IRS, you must provide us with a copy of the IRS letter showing your new Individual Taxpayer Identification Number (ITIN).
Note: We will not manage rental property for foreign owners who do not acquire an ITIN number.
IRS Form W8ECI
The Internal Revenue Service (IRS) requires us, the property manager to withhold 30% of your Gross rents to ensure you will file a tax return at year end. This is obviously very costly to you and also cumbersome for us. However, there is an alternative that will exempt you from the mandatory 30% withholding.
After obtaining an Individual Taxpayer Identification Number (ITIN), submit to us Form W8ECI.
Note: Do not send the Form W8ECI to the IRS. You send it Arrico Realty & Property Management
By filing Form W8ECI you eliminate the mandatory 30% tax withholding as it notifies us as the property manager (and the IRS) you will be filing annual tax returns to report your income and your expenses related to the rental property.
Most generally, you will file Form 1040NR (Nonresident Tax Return) with the IRS. Those tax returns are due by June 15th of each year and you should consult with your tax professional.
Currently IRS Form W8ECI Form remains in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any of the information on the form incorrect. For example, a Form W8ECI signed on September 30, 2015, remains valid through December 31, 2018. Upon expiration of the 3year period, you must provide a new Form W8ECI. If you do not file a form W8ECI with us, your property manager, we are REQUIRED by law to withhold 30% of your income from the rental and forward the funds to the IRS.
Note: We will not manage properties for owners who do not file the W8ECI form with us.
IRS Form 1042S
At the end of each year we provide you with a year-end statement of your income and your expenses related to the management of your property. Along with the year-end statement you will receive a copy of IRS Form 1042S that reports your income to the IRS. You will then use your copy of Form 1042S to file taxes through your tax professional.
Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney and/or tax professional to obtain advice with respect to any particular issue or problem. Applicability of the tax or legal principles discussed in this material may differ substantially in individual situations.