FOREIGN NATIONALS – GENERAL INFORMATION
Are you a foreign national that is interested in purchasing property within the US for rental purposes? If so, here are some forms, information and terms you may want to be familiar with during the process. Please note, the US tax year runs from January 1 through December 31.
RENTAL PROPERTY EXPENSES
If you own a Rental Property, the IRS gives the following guidance on common rental expenses and when these expenses can be deducted:
Types of Expense
|Advertising||Auto and Travel||Cleaning||Maintenance|
|Legal Fees||Other Professional Fees||Local Transportation||Management Fees|
When To Deduct You generally deduct your rental expenses in the year you pay them.
F.I.R.P.T.A. – Foreign Investment in Real Property Tax Act of 1980. To summarize, if you are a foreign national selling US real property, there is a mandatory 15% withholding tax assessed on the gross sales price of the property. You can apply for an early refund of this tax by applying for a Withholding Certificate. If no Withholding Certificate is applied for, the 15% must be submitted to the IRS within 20 days of the date of sale. The taxpayer can apply for a refund of this tax when he/she files their next US Income tax return. For more information regarding FIRPTA, see the link below:
I.T.I.N. – Individual Taxpayer Identification Number. The IRS states that, “IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers (SSNs)”, the US equivalent of the ITIN. For more information on the ITIN, see the link below:
Form W7 – Application for IRS Individual Taxpayer Identification Number. This must be attached to either a valid federal income tax return, or can be applied for if you qualify for an exception. Exceptions include, but not limited to, taking out a US mortgage or selling a US property. If you qualify under certain tax treaties, you may also qualify for an exception for opening a US interest bearing bank account or receiving rental income from a US rental property via a management company. A blank Form W7 can be found below:
H.U.D. Statement / Settlement Statement – A closing statement when purchasing or selling US real estate. This form provides the name and addresses of the buyer(s) (borrower) and seller(s) of the property, along with information on the sale such as the property location, date of sale, sale price, expenses for the buyer or seller, and any cash exchanging hands between the buyer and seller. Below is a copy of a blank H.U.D. Statement for reference.
Different types of taxes – Income, Real Estate, Tangible, Sales and Tourist Development.
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Income – Income tax is tax that is assessed by the US Federal Government on all income that is produced during the tax year. You file and pay these taxes with your Federal Tax Return (1040NR). Some areas of the US also have State and/or City income taxes where you must file a state/city tax return and pay any applicable taxes. The state of Florida does not have state or city income taxes. The income tax is where all of your rental expenses are deducted from as well.
Real Estate – A county tax based on the assessed value of the building and/or land you own. Real Estate Taxes also offer a discount for early payment, which include discounts of: 4% if paid in November, 3% if paid in December, 2% if paid in January, 1% if paid in February and 0% if paid in March. If the taxes are paid after March, a late fee may be applied.
Tangible – This tax is based on the assessed value of tangible assets you have in your property. Tangible assets consist of items such as furniture, fixtures, appliances, etc. and do not include buildings or vehicles. If the value of your tangible assets is under $25,000 and the property is located in the State of Florida, you will be exempt from paying tangible taxes if you file a tangible tax return showing that you own less than $25,000 of tangible assets. Once you become exempt, you will no longer need to file a tangible tax return and pay tangible taxes until such time where your tangible assets increase over the $25,000 threshold. Note: If you own multiple units in the same building, the assessed value of the units within the same building will be combined.
Sales and Tourist Development Taxes – In the State of Florida, Sales taxes are paid on all income received for rentals of Real Estate, regardless if it is a short-term or long-term rental. This tax is generally deducted from your income and paid by your management company monthly. Tourist Development Taxes are only paid on rental income from short-term rentals in the State of Florida, and is also deducted from your income and paid by your management company on a monthly basis.