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FOREIGN OWNERS & INVESTORS
FOREIGN OWNERS & INVESTORS OF UNITED STATES RENTAL PROPERTIES
Disclaimer: Please note that we are not tax professionals and this page is for informational purposes only. If you have any questions about this information, please consult your tax professional for advice regarding the Foreign Investment in Real Property Tax Act (FIRPTA). When you own a United States rental property it is your responsibility to pay taxes on any and all rental income that is earned in the United States. This is regardless of any tax treaties that may exist between your country and the U.S.
You have two options to pay rental income taxes. The first option is to pay a flat tax of 30% of your gross rental income. The second option is to choose to file an annual U.S. tax return and reduce your taxes by claiming deductions related to the management and ownership of the property. Some examples of deductions you may be able to claim are property taxes, insurance, management costs, etc. It is important to note that with either option you will need to have an Individual Taxpayer Identification Number (ITIN).
HOW TO OBTAIN AN INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER
Please Note: That for every foreign owner or investor that is listed on the property deed they will all have to have their own ITIN. Each individual will need to fill out IRS Form W7, and provide the IRS original certified identification documents.
You can fill out and download the IRS Form W7 here: https://www.irs.gov/pub/irs-pdf/fw7.pdf
You can read and download the instructions on how to fill out the IRS Form W7 here: https://www.irs.gov/pub/irs-pdf/iw7.pdf
There are “Certified Acceptance Agents” with the IRS and these agents will certify the original identification documents so that your application may be processed. Many people try to process their W7 form themselves because it looks easy to do. However, you will save yourself a lot of time if you visit an agent, and Certified Acceptance Agents are located worldwide. Find and contact an agent right here: http://www.irs.gov/Individuals/Acceptance-Agent-Program The IRS will take about 4-6 weeks to process your W7.
Once you have received the ITIN number from the IRS, please provide a copy of the letter the IRS sent you that shows your brand new ITIN.
Please Note: We are unable to manage rental properties for foreign owners who do not acquire an ITIN.
ABOUT IRS FORM W8ECI
Unfortunately for you as well as us the Internal Revenue Service (IRS) requires that any property manager for a foreign owner must withhold 30% of the gross rents to ensure that a tax return will be filed at year end. Financially this is very costly for you and for us it is extra maintenance.
Fortunately, there is a way that will exempt you from this mandatory IRS imposed 30% withholding.
You will need to submit IRS Form W8ECI to RentLucky Property Management. Do NOT send the form to the IRS.
Please Note: Do NOT send IRS Form W8ECI to us until you have received your Taxpayer Identification Number (ITIN).
Download IRS Form W8ECI from HERE: http://www.irs.gov/pub/irs-pdf/fw8eci.pdf
Download the instructions for IRS Form W8ECI HERE: http://www.irs.gov/instructions/iw8eci/index.html
Form W8ECI will eliminate the mandatory 30% withholding because the form informs the property managers or RentLucky Property Management and the IRS of your intention to file annual tax returns each year to report all your income and expenses that are related to your rental property.
When you are ready to file your taxes at the end of the year for the IRS the specific tax form you will need to file is Form 1040NR (Nonresident Tax Return). Form 1040NR will be due June 15 of the year following that you rented your property in the United States. (ie. The tax year 2018 will be due June 15, 2019.) Make sure to consult your tax professional about filling out this form.
Please note that IRS Form W8ECI will only be in effect for three years from the date the form is signed ending on the very last day of the third year from your sign date. So this means if you signed the form on August 30, 2018, it would remain in effect until December 31, 2021. When the Form W8ECI expires you must provide us with an updated Form W8ECI or we will be REQUIRED by law to withhold 30% of your rental income and then forward those funds to the IRS.
Please Note: We will not manage your property if you do not file Form W8ECI with us.
ABOUT IRS FORM 1042S
As part of our yearly reporting, we will send you a year-end statement that will detail your income and expenses related to the management of your property. In addition, to that statement, you will also receive a copy of IRS Form 1042S which is the form we send to the IRS to report your income. You will then take your copy of IRS Form 1042S and use it to file your taxes with your tax professional.
Legal Disclaimer: Once again the material contained on this page is for informational purposes only. This information should in no way be considered legal advice for your particular matter. You should always consult with an attorney and/or a tax professional to obtain the proper advice when you encounter a problem or a question. Any information related to taxes and legal principles discussed in this material may not be applicable to all individuals or situations.