FUNDAMENTALS
IRS
Managing Rental Properties of Foreign Owners
THE IRS FURTHER TARGETS FOREIGN OWNERS OF U.S. REAL PROPERTY
by Richard Hart
W
ith the impact of rampant U.S. federal government stimulus
or business activities. This election is made using the form W-8ECI, which is given to a property man- ager. Do not confuse this form with W-8BEN. The W-8BEN is only for financial institutions and this form does not exempt the property man- ager from collecting the 30 percent withholding tax. The IRS concern seems to be that there is substan- tial noncompliance with the report- ing 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 cor- porations and foreign trusts. To aid you in making sure your company is
compliant, please review the below information carefully.
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 elec- tion is made to treat the income as effectively connected with U.S. trade
ARE FOREIGN OWNERS EXEMPT FROMUS 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 citizen - ship).” Perhaps you have heard a variation of this at some point if you have foreign owner clients. However, a person who buys a property and rents it out, by definition from the U.S. tax code, is engaged in a passive activity. The U.S. tax code states that such an activity by a foreign person
32 | think realty magazine :: june 2021
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