US Tax Obligations for Non-resident Property Owners

November, 2020

Author: Lily Chow

Any US tax obligations for purchasing/selling US real property for non-resident property owners?

Foreign individuals and corporations are free to purchase or sell residential or commercial real properties in the United States. As a foreign non-resident real estate owner, have you considered the tax consequences before buying or selling real estate in the United States?

Pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA), U.S. tax law requires non-resident property owners selling U.S. real property interest to be subject to a withholding tax of 15% of the gross sales price. The withholding agent is required to file the appropriate forms and remit the tax to the US Internal Revenue Service (IRS). However, the withheld amount has no correlation with the actual US taxes due on the sale of the property. Instead, the funds are held until the IRS is satisfied that all US taxes due by non-resident property owners if any, are collected with appropriate US tax return filings.

To receive the withheld amount back, the non-resident property owner must file US tax returns for each year the rental income was generated. Alternatively, the non-resident property owner can apply for a withholding certificate to reduce the amount withheld to the maximum amount of tax due. To do so, previous years of US nonresident income tax returns must be submitted with the certificate application. A tax return must also be filed with the IRS to report the sale of any real estate property.

Please be advised that the IRS has recently launched several new audit campaigns aimed at non-resident foreigners:

  • Non-resident foreigners who have not disclosed or paid any withholding tax on their income from real property in the US as required by the FIRPTA as discussed above.
  • Non-resident foreigners who do not properly report rental income from US rental property.

It is apparent that foreign property owners have become a target as statistics show foreign investment in U.S. real estate as a major source of investment in the U.S.

Should you need our assistance in providing US tax compliance advice in relation to your real property in the US, please do not hesitate to contact us at via email.

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