Information for investors or foreign owners
Foreign Owners of US Rental Properties
US Taxation of Rental Income Generally
As a general rule, a non-US person who rents out his or her US home is subject to a 30% withholding tax imposed on the gross amount of each rental payment. Who is responsible for sending in the 30% of the gross rents tax into the IRS? The foreign owner, the US property manager (i.e., anybody who collects the rent payment for the foreign owner) and even the tenant, are all responsible to send the 30% tax into the IRS. For the non-US owner of US real estate, failure to follow the proper IRS tax rules can lead to a lien being placed on their US real estate, and can even negatively impact their US immigration rights.
However, there is good news the entire 30% withholding tax obligation can be easily removed:
The foreign owner must follow this simple formula to remove the 30% withholding tax obligation:
- The foreign owner must prepare a US tax return the year after the rental income is earned.
- The non-US owner must obtain a US Individual Taxpayer ID Number (an “ITIN”), if one has not already been obtained
- Finally the non-US owner must complete the IRS Form W-8ECI. The IRS Form W-8ECI is not completed unless the foreign owner obtains an ITIN. A new IRS Form W-8ECI should be completed every 3 years.
- After obtaining an Individual Taxpayer Identification Number (ITIN), submit to us Form W8ECI.
Disclaimer: We are not tax professionals. This information is 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.
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 June 30, 2018, remains valid through December 31, 2021. 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.
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.