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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.
The US tax year runs from January 1 through December 31
- ONLY for property owners, AND
- ONLY if primary purpose of travel was business
When to Deduct: You generally deduct your rental expenses in the year you pay them.
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) which is due June 15th and can be extended to December 15th with a timely filed extension. 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.
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.
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 association, the assessed value of the units within the same association may be combined.
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.
To summarize, if you are a foreign national selling US real property, there is a mandatory 15% estimated capital gains withholding tax assessed on the gross sales price of the property. You can apply for an early full or partial 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, showing the sale of the property, and calculating any actual capital gains tax.
For more information regarding FIRPTA, see the link below:
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 person equivalent of the ITIN.
Beginning 2016, some ITINs have started expiring and will require renewing in order to receive a tax refund or to take advantage of certain tax credits. If your ITIN has the middle digits between 70-88, 90-92, or 94-99, and was issued prior to 2013, or you haven't filed a tax return in the past three years, it'll need to be renewed.
For more information on the ITIN, see the link below:
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:
This is 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.
This Form is to give your management company (or company collecting your rental income on your behalf) your most updated information including name, address, and tax ID number (ITIN).
Management companies must have an updated Form W-8ECI on file, otherwise they are required to withhold 30% of your rental income as an estimate income tax withholding.
The management company reports this income collected to the IRS on Form 1042-S, which a copy is also given to you for your records. You must match this income on your tax return (Form 1040NR).
Blank Forms W-8ECI and 1042-S can be found below:
Form W-8ECI: https://www.irs.gov/pub/irs-pdf/fw8eci.pdf
Form 1042-S: https://www.irs.gov/pub/irs-pdf/f1042s.pdf
This Form is to give your financial institution (mortgage lender, US bank, etc.) your most updated information including name, address, tax ID number (ITIN), and Country of residence to apply any tax treaties that are applicable.
Mortgage lenders will report your information from the W-8BEN as well as the interest paid on the mortgage to the IRS via Form 1098.
Banks will report the your information from the W-8BEN as well as interest earned from a savings account to the IRS via Form 1042-S.
Blank Forms W-8BEN, 1098, and 1042-S can be found below:
Form 1098: https://www.irs.gov/pub/irs-pdf/f1098.pdf
Form 1042-S: https://www.irs.gov/pub/irs-pdf/f1042s.pdf