FUNDAMENTALS
TAXATION
Foreign Owners of U.S. Real Property
HOW THE IRS IS FURTHER TARGETING FOREIGN INVESTORS
by Richard Hart
ith the impact of rampant U.S. federal government stimulus
tively connected with US trade or business activities. This election is made using the form W-8ECI, which is given to a property manager. Do not confuse this form with W-8BEN. The W-8BEN is only for financial institutions and this form does not exempt the property manager from collecting the 30 percent withhold- ing tax. The IRS concern seems to be that there is substantial noncom- pliance with the reporting of these U.S. real estate rental activities, this required 30 percent withholding, and required tax filings and compliance with respect to rental activities of NRAs and other foreigners, such as, e.g., foreign corporations and foreign
trusts. To aid you in making sure your company is compliant, please review the below information carefully.
W
spending to address the coronavirus pandemic and the continuing impact of tax cuts under the 2017 Tax Cuts and Jobs Act (TCJA), the country is awash in red ink. The IRS is rapidly gearing up to play its part in col- lecting more tax revenues and its spotlight has shifted solidly to target real estate investment transactions by foreigners. A nonresident alien (NRA) and oth - er non-U.S. taxpayers who own U.S. rental property can be subject to a 30 percent withholding tax on the gross amount of rent unless an election is made to treat the income as effec-
ARE FOREIGN OWNERS EXEMPT FROMU.S. TAX ON RENTAL INCOME? “I don’t need to pay tax in USA. I filled in form W8BEN Certificate of Foreign. This enables me to pay tax on profits only in (country of citizenship).” Perhaps you have heard a variation of this at some point if you have for- eign owner clients. However, a per - son who buys a property and rents it out, by definition from the U.S. tax code, is engaged in a passive activity.
28 | think realty magazine :: september 2021
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