Renting To Foreigners Tax Question

[steveinbsas]

Sergio, I would ask an accountant.

Or call the IRS at 1-800-829-1040 and ask them: Are funds which are paid for the rental of a foreign property that is owned by a nonresident and are received in the US by a rental agency and then deposited in the nonresident's US bank account subject to the 30% withholding rule?

I would call them using skype but it doesn't always work well from inside my house and it's still rather frosty outside.

 

[ben]

I spoke to an accountant some time ago. From what he said it was pretty clear that if you're not a US resident and doing business outside the US, you don't pay US taxes.

The question is if the agent's being based in the US turns the whole thing into a US transaction. One would think that if the payment is being made by the tenant to the landlord and not going through the agent, it would not be called US business.

 

[nkotb]

The agent's key in this scenario. It is the one making the payment. As a US person, it will likely be advised to withhold 30% of the payments to a non-resident just to be on the safe side. By the way, there is a difference between the tax treatment of trade or business income and passive income like this (known as Fixed, Determinable, Annual or Periodical). That may explain why Tex's partner doesn't have to pay tax. The US Tax Code is fun, no?

 

[Jaredberryman]

My partner does not have to pay tax because he is not a permanent resident or citizen. If that's the case, you do not have to file a tax return or pay income tax. You only have to pay sales tax if your purchase something, and even some states will return your sales tax. Logic says that if you do not have to file a tax return, then what taxes would you have to pay in rental income?

 

[steveinbsas]

My partner does not have to pay tax because he is not a permanent resident or citizen. If that's the case, you do not have to file a tax return or pay income tax. You only have to pay sales tax if your purchase something, and even some states will return your sales tax. Logic says that if you do not have to file a tax return, then what taxes would you have to pay in rental income?

The crucial difference here appears to be the one between active (trade or business income) and passive income. Your nonresident partner does not have to pay taxes on the active income he receives via the "pass through" feature of the LLC.

According to the information in the "quote" below, passive income earned in the USA by nonresidents is subject to a 30% tax even though they are not required to file a tax return.

Passive income includes dividends as well as interest received on money deposited in a US bank, royalty, rents, alimony, certain capital gains, and 85% of U.S. social security benefits

Even if it turns out the rental income for the apartment in Argentina is not subject to taxation in the US (because it is located outside of the US), the US bank in which the rental income is deposited would be required to withhold 30% of interest paid to the foreign account holder and send it to the IRS, even though the account holder is not required to file a tax return.

The unanswered questions are still, "If the rental income is received by a business in the US and then deposited into the nonresident's US bank account, is it subject to the 30% tax?" and if it is, "Is the rental agency responsible for withholding the 30% tax and sending it to the IRS?"

Based on what I've read, if the apartment was in the US the rental income would be subject to the 30% tax, but If you are a nonresident taxpayer and your only U.S. source income consists of passive income, (and) you are not required to file a U.S. tax return, how do you pay the 30% tax due on rents, alimony, certain capital gains, and 85% of U.S. social security benefits?


Passive Income
Unlike trade or business income, U.S. source passive income is taxed on a gross basis at a flat tax rate of 30%. “Gross basis” means that no deductions or exemptions are allowed against this income. For purposes of this discussion, the most typical types of income which fall into the “Passive Income” category are interest,dividends, royalty, rents, alimony, certain capital gains, and 85% of U.S. social security benefits

The flat tax of 30% is usually collected through a withholding mechanism with the burden to withhold placed upon the payor of the income.
For example, a U.S. corporation is generally required to withhold the 30% tax from any dividends it pays to nonresident taxpayers, and remit this withholding to the U.S. government on behalf of the individual.

If you are a nonresident taxpayer and your only U.S. source income consists of passive income, you are not required to file a U.S. tax return.

The withholding tax generally satisfies any U.S. tax liability.

Source: http://www.gtn.com/U...als.pdf (pages 29 and 30)