Wondering if a non-US citizen can buy real estate in the United States? Good news! Anyone can buy real estate in the United States, regardless of their citizenship. However, you must be aware of your US tax obligations.
Can a non-US citizen buy property in the United States?
Non-US citizens can buy real estate because citizenship is not required to sell real estate. Foreigners can even qualify for a mortgage if they meet certain requirements. Foreign property owners, however, face a more difficult tax situation than US citizens.
If you understand the tax rules before you buy real estate in America, you can make the most of your investment. Below is a breakdown of exactly what overseas property owners in the US must submit and what they should pay taxes on when renting or selling property in the US. For example, you would like to know in which situations a 1040NR is required and whether 30% withholding tax must be automatically removed from payments. So read our ten facts about buying real estate as a non-US citizen!
10 Quick Tax Facts About Buying Real Estate As A Non-US Citizen
1. IRS publication 515
The first thing you need to know about buying real estate as a non-US citizen is that IRS publication 515 summarizes the rules for non-residents (NRA). The 1980 Real Estate Tax Foreign Investment Act (FIRPTA) was passed by Congress to impose a tax on foreigners who sell or receive income from US property interest.
2. Tax rates
In general, income from real estate in the United States that belongs to a non-resident foreigner is taxed at a 30% tax rate (or lower contract) if it is not effectively related to a US trade or transaction.
3. You can choose how your property income is treated
If a non-resident alien owns or holds real estate in the United States for income, the NRA may treat all income from that property as income that is effectively related to a trade or business in the United States. The selection applies to all income from real estate in the United States. If the choice is made, deductions can be made based on real estate income, making the net income taxable.
4. Choices to be made
How do you choose that? The choice can be made by a choice according to § 871 (d).
5. Why elections are important
The choice makes a big difference, so consider the implications before you buy real estate as a non-US citizen. For example, if the gross income from rental properties without the choice is $ 30,000, income tax is $ 10,000 (30% of $ 30,000). When choosing, deductions such as mortgage interest, property tax, etc. would reduce taxable income and the tax payable would be 30% of the net amount.
6. Tax treaty
Tax treaty could provide for a reduced tax rate.
7. Profits affect taxation
When a non-resident sells a property in the United States, any profit is taxed as if the property had been sold by a US citizen or a resident. This means that the profit is eligible for a lower long-term treatment of capital gains if the property is held for more than 12 months.
8. Withholding tax
Non-residents are subject to a 15% withholding tax on the gross sales of the transaction, unless the non-resident has a special withholding tax exemption. An application for exemption would have to be submitted to the IRS prior to the date of sale to obtain an exemption certificate (Form 8288-B Application for Retention Certificate for Foreign Property Disposals of U.S. Real Estate). A lower 10% rate applies to sales of less than $ 1 million for U.S. real estate acquired as personal property.
9. State tax
Depending on the federal state, state withholding tax or tax liability may arise.
The NRA would have to file a 1040 NR tax return in good time to report real estate income and related withholding taxes if the 871 (d) election is conducted. Foreigners must receive a U.S. Tax Identification Number (TIN) to file a tax return.
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