Welcome
to the Wiesenberg & Co. Certified Public Accountants foreign
property owner tax update.
When
is a villa/flat owner obligated to file United States tax returns
and what is the best way to structure these rental activities?
To
start with, only rental property that is rented
out for more than 14 days during a calendar year is subject to
taxes.
If
a property is subject to taxes, the general rule for foreign filers
in the United States is that a flat 30 percent of their gross
income has to be withheld by those making the payments. In most
cases this means the property manager would withhold that amount.
The foreign filer would not be able to subtract any expenses from
the rental income. The 30 percent withholding from gross receipts
would cover the entire tax burden, and no tax return would need
to be filed.
The
way to avoid this heavy tax is to structure the villa rental as
a business. Once the proper elections are completed, withholdings
are no longer required. Even better than that, all expenses relating
to rental income can be deducted against revenue (next month we
will talk more about these deductions). Using this method a tax
return (in most cases form 1040NR) needs to be filed with the
Internal Revenue Service. It is beneficial in almost all situations
to use this second method. With effective tax guidance many villa/flat
owners find they pay no American taxes at all.
Reminder:
The US tax year is from January to December - so now is the time
to start gathering your information.
Tax
tip of the day
United
States taxing authorities allow depreciation on the building used
for rental activities. This means that although your property
is appreciating in value you are still entitled to a tax write
off. It is important; however, that certain correct choices of
how much to depreciate are made at the initiation stages so that
deductions are not wasted.
Please
contact us with any comments or questions
you may have.
(This
newsletter is designed to be of general interest. The specific
techniques and information discussed may not apply to you. Before
acting on any matter contained herein, consult with your professional
advisor.)
1040NR |
United States Tax Return |
American Taxes |
United States taxes
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