Tax Implications for Foreigners Owning U.S Real Estate.

Here are some key considerations for a foreign person planning to sell U.S. property:

When a foreign person plans to sell their property owned in the U.S., there are different U.S. tax issues to consider.

My Professional Advice

Every situation is unique and consulting with both a tax professional and a real estate professional is highly recommended. A tax professional can provide you guidance on tax implications, compliance requirements, and potential deductions, while a real estate professional can assist you with the sales process, market analysis, and legal considerations.

Selling US Real Estate For Foreigners, Non-resident Aliens.

US capital gains are not taxable to non-resident aliens. In general, the source of capital gains is attributed to the taxpayer’s location for tax purposes. This general rule does not apply to individually owned US real estate by a foreigner, non-resident alien.

Individually owned real estate is taxed on the sale as capital gain. Thus, non-resident alien determine the value of the real estate on the date of acquisition — and the date of sale — and then pays capital gains tax on the difference of the acquisition price and the sale price. 

To monitor the sale of U.S. property owned by foreign nationals, the United States implemented FIRPTA, which stands for the Foreign Investment in Real Property Tax Act.

FIRPTA

To guarantee the IRS can collect any taxes owed on the gain from the sale of U.S. real estate by a non-resident alien, the Foreign Investment in Real Property Tax Act mandates a 15% withholding of the sale price (not the perceived gain). This amount is to be deposited with the U.S. government until the sale is finalized.

Rental Income

Non-resident aliens earning rental income from U.S. real estate must report it on their U.S. tax returns and may qualify for certain deductions.

Capital Gains Tax

The sale of U.S. real estate by a non-resident alien is generally subject to U.S. capital gains tax, with rates varying based on factors like ownership duration.

Tax Treaties

Tax treaties between the U.S. and the foreign person’s home country may impact the taxation of U.S. real estate transactions.

Estate Tax

Non-resident aliens may face U.S. estate tax on the value of their U.S. real estate if they pass away while owning such property.

Interested in reading more about this topic? You may want to read:

How to Challenge Your Property Tax Assessment

Selling Your Home In A Changing Housing Market