Foreign Owners Earning Rental Income from US Real Estate

If you are a foreign owner of US real estate and earn rental income from it, you need to be aware of the tax implications. Here’s what you need to know.

Rental Income

As a foreign owner of US real estate, you are subject to US federal income tax on the rental income you earn from the property. You must file a US tax return and report the rental income you received.

Withholding Tax

Under US tax law, the tenant who pays rent to a foreign owner of US real estate is required to withhold 30% of the gross rental income and remit it to the Internal Revenue Service (IRS). This withholding tax is a prepayment of the foreign owner’s US federal income tax liability.

Claiming a Refund

If the amount of withholding tax exceeds the foreign owner’s actual US federal income tax liability, the foreign owner can claim a refund of the excess amount by filing a US tax return.

Treaty Benefits

Foreign owners of US real estate may be eligible for reduced withholding tax rates under a tax treaty between the US and their home country. To claim treaty benefits, the foreign owner must provide the tenant with a valid Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting.

Conclusion

Foreign owners of US real estate who earn rental income need to be aware of the US tax implications. It is important to file a US tax return and comply with US tax law to avoid penalties and ensure that you are not paying more tax than you owe.