As a non-resident alien who owns rental property in the U.S., you have certain tax obligations:
Rental Income: The rental income you earn from your U.S. property is considered U.S.-sourced income and is subject to U.S. tax. You must report this income on Form 1040-NR, U.S. Nonresident Alien Income Tax Return.
Withholding Tax: Generally, a foreign person receiving U.S. rental income is subject to a 30% withholding tax on the gross rental income. However, you can elect to have the net rental income treated as effectively connected income. This means you would be taxed on your net rental income (rental income minus deductible expenses) at graduated tax rates. You must attach a statement to your tax return to make this election.
Deductions: If you make the election to treat your rental income as effectively connected income, you can deduct expenses related to the rental activity. These may include property management fees, property taxes, mortgage interest, repairs, and depreciation.
Capital Gains: If you sell your U.S. property, you will be subject to U.S. capital gains tax on the profit from the sale. The rate of tax will depend on how long you owned the property.
FIRPTA: The Foreign Investment in Real Property Tax Act (FIRPTA) requires buyers to withhold a portion of the sales price when purchasing U.S. real property from a foreign person. This ensures that any tax owed on the gain from the sale is paid.
Start your taxes today with the guidance and support of one of our expert accountants: Get Started Today!