US Tax Planning for Foreigners Owning US Real Estate (2024)

FAQs

US Tax Planning for Foreigners Owning US Real Estate? ›

FIRPTA is the Foreign Investment in Real Property Tax Act. It requires a 15% withholding of the sale price (not the perceived gain) to be deposited with the US government pending the completion of the sale — this is to ensure that the foreign national files a U.S. tax return and pays any capital gain income.

Even though it's perfectly legal for foreigners to invest in U.S. real estate, it may be difficult to obtain a loan for the investment. It's also common for foreign investors to run into difficulties understanding U.S. taxes, which can lead to substantial problems when it comes time to invest in a property.

Yes, you must report foreign properties on your U.S. tax return just like you would report any owned U.S. property. To do that, you first need to know what type of ownership you have because it affects what tax forms you must file.

U.S. Tax for Foreign Investors

As a general rule, foreign investors (i.e. non-U.S. citizens and residents) with no U.S. business are typically not obligated to file a U.S. tax return, including on income generated from U.S. capital gains on U.S. securities trades.

If you are a nonresident alien, generally you will not have to pay U.S. capital gains tax on your investment earnings. If you are a resident alien, generally, you will be subject to the same capital gains tax as U.S. citizens. Consult with a tax advisor for any assistance you may need. Internal Revenue Service.

Yes, it is possible for a non-permanent resident to buy a house in the United States. Mortgage approval odds generally depend on the lender, type of mortgage, income status and whether the non-permanent resident can prove their intent for long-term residency.

A 1031 exchange is available to foreign sellers of real property held for productive use in a trade or business, or held for investment purposes, however, the foreign status of the person or entity selling the real property can cause some extra complications which must be addressed.

Non-US persons are subject to US estate tax on the value of their tangible and intangible assets located in the United States. In this context, tangible assets refer to real estate located in the United States. Intangible assets in this context most often refer to stocks in a United States corporation.

If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.

FATCA Reporting

One of easiest ways for the IRS to discover your foreign bank account is to have the information hand-fed to them from various Foreign Financial Institutions.

What is the US tax rate for foreign investors? ›

Under US domestic tax laws, a foreign person generally is subject to 30% US tax on the gross amount of certain US-source income.

Nonresident aliens who receive interest income from deposits with a U.S. bank, savings & loan institution, credit union, or insurance company, or who receive portfolio interest (described in Publication 519, U.S. Tax Guide for Aliens) are exempt from taxation on such interest income as long as such interest income is ...

Those include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming. It's no coincidence that these eight are also no personal income tax states. (Although, Tennesee has a limited tax on certain dividends and capital gains, and New Hampshire taxes interest and dividends income.)

Unlike resident aliens, nonresident aliens are required to pay income tax only on income that is earned in the U.S. or earned from a U.S. source. 6 They do not have to pay any taxes on foreign-earned income.

Live in the house for at least two years

The two years don't need to be consecutive, but house-flippers should beware. If you sell a house that you didn't live in for at least two years, the gains can be taxable.

Anyone may buy and own property in the United States, regardless of citizenship. There are no laws or restrictions that prevent an individual of any foreign citizenship from owning or buying a home in the U.S.

Yes, you can obtain a green card through real estate investment in the United States. Although buying a real estate property will not directly help get a green card in the U.S., there are some ways to get a green card by investing in real estate. One of the preferable ways is through the EB-5 Investor Program.

A lawful permanent resident is someone who holds a “green card.” Green card holders may apply for home loans just like citizens. Lawful permanent residents can use their green card as proof of residence to get financing and buy a home in the U.S.

The tax code specifically excludes some property even if the property is used in trade or business or for investment. These excluded properties generally involve stocks, bonds, notes, securities and interests in partnerships. Property held “primarily for sale” is also excluded.

Which type of property does not qualify for 1031 exchange? ›

Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

Avoid FIRPTA Tax With 1031 Exchange

1031 exchange is an exception to the FIRPTA and can be obtained when the foreigner applies for a withholding certificate on IRS form 8288-B before the sale.

Foreign buyers living in the U.S. made up the lion's share of investors, buying $34.1 billion worth of U.S. homes — or 58% of the volume.

(It will remain non-taxable.) The thresholds vary depending on the source of the gift. If you receive a gift from a foreign individual or foreign estate, you must report it if the total value of the gift exceeds $100,000 during a given tax year.

Foreign Tax Credit

Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.

When a business is organized as a pass-through entity, profits flow directly to the owner or owners. In turn, these are not taxed at the corporate level and again at the personal level. Instead, the owners will pay taxes at their personal rate, but double taxation is avoided.

Overseas Mail Forwarding Services

The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month.

Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).

The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there.

You must report any account with more than $10,000, or if your combined accounts have a total value greater than $10,000. In addition, overseas banks are required to report their U.S.-owned accounts or risk exclusion from U.S. markets. Internal Revenue Service. "Report of Foreign Bank and Financial Accounts (FBAR)."

What is high taxed foreign income? ›

High Taxed Income: Passive income that is taxed by a foreign government at a rate higher than the highest U.S. income tax rate, and may be classified as “general category income,” making it eligible for the foreign tax credit.

Your foreign accounts may be subject to double taxation.

If you are subject to US income tax on your accounts, you may be eligible for a credit or itemized deduction for the foreign taxes you accrued. You may also take advantage of exemptions or preferential tax rates under a tax treaty.

If a nonresident receives US source income, a mandatory withholding of 30% on most types of income will apply. But, exceptions exist – for example, on some sales of US real estate. However, the US has tax treaties with many countries that change the tax treatment of US source income to 15%, 10%, or even zero.

To be exempt from withholding, both of the following must be true: You owed no federal income tax in the prior tax year, and. You expect to owe no federal income tax in the current tax year.

For most businesses however, the best way to minimize your tax liability is to pay yourself as an employee with a designated salary. This allows you to only pay self-employment taxes on the salary you gave yourself — rather than the entire business' income.

By keeping assets in tax-deferred accounts like IRAs and 401(k) plans, you won't have to pay tax on your income and gains until you withdraw the money from the account. In the case of a Roth IRA, you may never have to pay tax on your distributions at all.

The states with no additional state tax on capital gains are: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. These are the same states that do not tax personal income on wages, although they might tax interest and dividends from investments, depending on the state.

Living Off Capital Gains with No Taxation

Especially when the taxpayer resides in a foreign country with a lower cost of living and has amassed a significant amount of non-recognized gains – this is one strategy some taxpayers may qualify to use to pay zero income tax.

In general, US capital gains are not taxable to nonresident aliens. Rather, capital gains are considered sourced at the location of the Taxpayer. This general rule does not apply to individually owned US real estate by a foreigner, non-resident alien. Individually owned real estate is taxed on the sale as capital gain.

What is the 183 day rule for taxes? ›

You are a tax resident if you were physically present in the U.S. for 31 days of the current year and 183 days in the last three years, including the days present in the current year, 1/3 of the days from the previous year, and 1/6 of the days from the first year.

Can a husband and wife buy separate primary residences? Yes, married spouses could buy separate primary residences if they don't co-borrow on each other's mortgages. Each borrower would need enough income and credit to qualify for a mortgage as a sole borrower.

Lack of Restrictions Imposed by the United States Government

Therefore, international buyers are not subject to any additional taxes or regulations. The rights to purchase and own property in the United States is the same for a foreign investor as they are for a United States citizen.

Foreign buyers living in the U.S. made up the lion's share of investors, buying $34.1 billion worth of U.S. homes — or 58% of the volume.

Despite what you may have heard about China's specific influence in purchasing property and agricultural land in the U.S., Canada is still the largest investor, accounting for 8% of foreign investments in U.S. real estate, according to the National Association of Realtors.

Real estate investment in the US has always been popular among Indians. While any non-US citizen can buy a property in the States regardless of their citizenship, it is crucial to understand the legal and tax norms before taking the plunge. 99acres shares the rules and regulations to invest in US real estate.

When foreign investors buy more U.S. stocks and bonds, the income receipts increase. This increases because money is flowing into the United States and this increases the balance of trade.

Why are Chinese investors buying US real estate? ›

Many Chinese and Hong Kong nationals may find this an intriguing option because of the relatively cheaper housing prices in the United States (compared to metro areas of other western countries) and the availability of coastal area properties in many country locations.

No, you do not have to be accredited, but we do require all foreign investors to use a US bank account and complete either a W-8BEN or W-8BEN-E form. The minimum investment criteria differs for foreign investors, as well.

Foreign buyers who resided in the U.S. as recent immigrants or who were holding visas that allowed them to live in the U.S. purchased $34.1 billion worth of U.S. existing homes, a 5.2% increase from the prior year and representing 58% of the dollar volume of purchases.

China owns roughly 384,000 acres of U.S. agricultural land, according to a 2021 report from the Department of Agriculture.

As seen in Table 2, when sorted by total land value, the top 10 countries for foreign investors are Canada, the Netherlands, Germany, Italy, the United Kingdom, Portugal, France, Japan, Sweden, and China.

China is home to more of the world real estate market assets (by value) than any other country at $42.7tn or 21 per cent of global real estate value, just ahead of the US at $42.1tn.

1. EMMERSON FAMILY. The nation's largest private landowners, California's Emmerson family, are a prime example of this trend. Through their Sierra Pacific Industries, the Emmersons increased their landholdings by more than 100 square miles to over 2.4 million acres.

The largest real estate company in the USA is Coldwell Banker. Founded in 1906, Coldwell Banker has over 100 years of experience buying and selling homes that they share with the people they work for. It has a total of 3000 offices and even exists in more than 49 countries.

Yes, you can obtain a green card through real estate investment in the United States. Although buying a real estate property will not directly help get a green card in the U.S., there are some ways to get a green card by investing in real estate. One of the preferable ways is through the EB-5 Investor Program.

Invest $ 1,050,000 To Get An EB-5 U.S. Green Card

It is important that the money used for this investment be traceable - the source and path of funds need to be documented and clean. Processing times vary depending on the birthplace of the investor.

Can you buy US green card? ›

Buying a Green Card with EB-5 Visa

In return for investing $ 900,000 or $ 1,800,000 (depending on the US company's location) and creating jobs for US citizens, the applicant receives the "Green Card for Immigrant Investors."