Accountant for Real Estate Property Transactions to a U.S. Non-Resident Alien

Considering all the extra tax burdens levied on foreign citizens looking to sell U.S. property, there are surprisingly few obstacles for non-resident aliens looking to buy property in the United States. This is because the U.S. government largely treats the purchase of property by foreign nationals the same way they treat purchases by American citizens, with a few very specific exceptions. Overall, the amount of paperwork and red tape is less than you might assume.

Still, to call the property-buying process simple by tax standards is not to say that the process isn’t quite complicated in its own right. Turning to an accountant with experience in international tax law can help save you time and money in the long run and make the whole transaction significantly easier. Ted Kleinman, CPA, has more than three decades’ experience working in U.S. tax law with a focus on international tax codes; he and his staff stand ready to help with any purchase you may be looking to make. To learn more about how the team at U.S. Tax Help can assist you, visit us online or contact us today at (541) 923-0903.

Applying for an Individual Taxpayer Identification Number

The first step a non-resident alien must take before buying property is to set up an Individual Taxpayer Identification Number, assuming they do not already have one and do not qualify for a Social Security Number. The process of applying for one of these numbers requires you to fill out IRS form W-7, Application for IRS Individual Taxpayer Identification Number.

This number, known as the ITIN, is a nine-digit number used to help the Internal Revenue Service identify atypical taxpayers, such as non-resident aliens. If you are a U.S. citizen, or if you were admitted to the U.S. to take up permanent residence or employment, you are likely eligible for a Social Security Number instead and should fill out form SS-5, Application for a Social Security Card.

Those applying for an ITIN, however, will have to produce one of 13 specific documents:

  • A passport
  • S. Citizenship and Immigration Services photo identification
  • Visa from the U.S. State Department
  • S. driver’s license
  • S. military ID
  • Foreign driver’s license
  • Foreign military ID
  • National identification card with name, photo, address, date of birth, and expiration date clearly labeled
  • S. state identification card
  • Foreign voter registration card
  • Civil birth certificate
  • Medical records (only applicable for dependents younger than 6 years old)
  • School records (only valid for dependent students younger than 18)

Some of these documents are used to establish your identity; others are used to show foreign status. In some cases, the IRS may require certificated translations of documents issued in a foreign language.

Tax Implications of Real Estate Investment and Sales as a Foreign Citizen

Though the actual purchase of the property requires surprisingly little in the way of extra effort, the property’s purpose could potentially represent a tax liability for the new owner. That’s because the IRS requires even non-resident aliens to pay income taxes on any earning originating in the United States – including rent collected on a new property.

The government imposes a 30 percent withholding tax on any rental income collected by foreign persons, an amount that could be reduced by tax treaties with certain foreign governments.

Additionally, any property sales conducted by, or on behalf of, a foreign person are likely subject to additional tax burdens. Capital gains taxes can apply in some cases, leading to a deduction of as much as 20 percent from any profits. This is on top of the provisions laid out in the Foreign Investment in Real Property Tax Act of 1980, which requires that foreign persons selling any real property-based assets to turn over up to 15 percent of the sale amount to the IRS. Combined, these two taxes could seriously hamper any real estate investments made by non-resident aliens.

Complications of Buying Property as a Non-Resident Alien

On top of the typical hoops a property buyer must jump through, there are additional complications for foreign citizens that could delay or jeopardize the entire process. One of these factors is the potential need for overseas currency transfers for cash sales, a procedure that could have a strong impact on the purchase, either for better or worse depending on the exchange rate.

Verifying the buyer’s identity and citizenship, clearing large amounts of money for entry into the U.S., negotiating a nonstandard agreement for the sale, and any number of other obstacles can also make the purchase difficult for a foreign person to conduct on their own. Retaining the services of an experienced financial expert can not only expedite the process, but also relieve stress for everyone involved.

Certified Accountants Specializing in International Tax Law

The team at U.S. Tax Help has decades of experience working with the various aspects of U.S. tax law as it applies to international people and transactions. Ted Kleinman, CPA, leads this group of client-focused accountants and advisors who can offer expertise on a diverse range of industries. To learn how U.S. Tax Help can assist you, visit us online or call (541) 923-0903 to set up your first consultation.

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