Accountant for Foreign Nationals that Own Real Estate in California
The idea of owning real estate in sunny California is an exciting one, no matter if you are an American citizen or a foreign national. From the warm, sandy beaches of Southern California to the cool breezes of the Bay Area up north, the Golden State has a lot to offer people of all tastes. However, like most major decisions, choosing to own real estate in California comes with a certain number of legal and financial obligations, including the need to consider what local and federal taxes may be imposed on foreign nationals.
Fortunately, the experts at U.S. Tax Help have the knowledge and insight to guide you safely to compliance with American tax laws. This team of accountants – led by Ted Kleinman, a CPA with more than three decades’ experience in international taxation – is available for consultations with clients anywhere in the world, making it easy and convenient to address any tax question or issue. To find out how the specialists at U.S. Tax Help can assist you with your California real estate, visit us online or call (541) 362-9127 today.
Foreign Nationals with a California Residence
Owning a home in California is a dream come true for millions, but not every part of home ownership is pleasant. This is especially true for foreign nationals, as the tax situation for citizens of another country who own a home in the U.S. can be quite complicated. The Internal Revenue Service, which is the taxation arm of the U.S. government, levies different types of taxes against foreign citizens depending on whether or not they qualify as a resident under the law. To make this determination, the IRS uses one of two tests:
- The substantial presence test is a measure of the amount of time a person has been physically present in the United States; if a foreign national has spent a certain number of days in the U.S., they will be subject to steeper taxes. If you have spent at least 31 days in the U.S. this year and a total of at least 183 days over the most recent three years, you will likely be treated as a resident under the law. Keep in mind that the IRS does not count every day of the last three years toward your 183-day total, instead counting every day you were present in the current year, 1/3 of the days last year, and 1/6 of the days in the year before that.
- The green card test simply looks at whether you have been issued an alien registration card, also known as a “green card” by the U.S. government. If you have received this document, which is identified as Form I-551 by the U.S. Citizenship and Immigration Services, you are considered a resident of the United States.
All U.S. residents are taxed on their worldwide income, regardless of where it was earned, whereas nonresidents are only taxed on money earned in the U.S. Make sure you consider these residency thresholds when deciding how much time to spend at your California property.
In addition, any foreign national who owns California real estate will be required to pay property taxes, which are applied at the local level and tend to change from county to county. This tax is set based on the value of the property you own and – in California, at least – is typically just under 1% of that value. A qualified tax specialist can further explain this obligation.
Owning a Rental Property in California as a Foreign Citizen
With its relatively high cost of living, California has some of the most expensive housing in America. This is good news for the owners of rental properties, as they can charge a premium for their space. However, if you are a foreign national with real estate in California, know that you will likely face a substantial tax on any rent you collect. In fact, all types of fixed, periodic income earned by foreign citizens is taxed at a flat 30% rate unless otherwise specified by a specific tax treaty. Any income related to a trade or business, on the other hand, is taxed at the same rates as income earned by an American citizen.
Additionally, there are some circumstances in which you can elect to treat this income as business-related, which means that a graduated tax rate will apply instead of the flat 30% tax. This will allow you to claim certain deductions that could save you money, though the specifics of this can vary on a case-by-case basis. A certified public accountant with experience in international taxation can help you determine which path make the most fiscal sense in your situation.
Tax Specialists for Foreign Nationals with Real Estate in California
Navigating the twists and turns of the American tax code can confuse even those who have lived in the U.S. their entire lives; figuring out your tax obligations as a citizen of a foreign country can be even more baffling. Luckily, the accountants at U.S. Tax Help specialize in guiding people from around the world through the intricate requirements surrounding income and real estate in the U.S. If you own property in California and would like to ensure that you pay the lowest tax rate possible and stay in compliance with U.S. law, enlist the aid of the team at U.S. Tax Help today. Visit us online or call (541) 362-9127 to schedule your first consultation.