Foreign real estate investors in the US play a big roles in stabilizing the industry. With the income from the outside coming in, the real estate market is significantly supported despite the fact that federal government funds are being used elsewhere for economic relief. To date, the investments received from overseas amount to an estimate $44 billion dollars.
The appeal of the US real estate market lies in the fact that we are a steadily improving our economic stability. Unemployment rate is currently at its lowest and the downward trend seems to be consistent. Other reasons include the availability of properties, the liquidity of the market and the overall low risk for generally all types of real estate investors.
The political support that foreign investors are receiving is also something that encourages outside investment.. The US legislators are making the real estate package all the more attractive through the Homeowner’s Visa and similar bills being passed.
As encouraging as these can be, you need to be aware of certain tax developments that are involved in foreign real estate investing. There are 5 specific rules that foreign investors should be aware of to make sure their transactions will not be compromised. At the very least, these rules, when followed will allow maximum benefit of the income generated from the US property.
First of the 5 rules is for the foreign real estate investors to acquire a valid Taxpayer Identification Number (TIN) from the Internal Revenue Services (IRS). This number will be used in all tax-related documentation of the person in relation to the business. Income of the foreign partners can be looked at in two ways. One is as an investment income and the second is connecting it to a trade or business in the U.S. The biggest difference between the two is that the latter is deducted tax at net while the former is assessed tax at gross.
The second rule is connected to tax savings. As mentioned, electing your US property to be connected to a legal business or trade in the country will allow you to achieve this. This means foreign real estate investors have to attach any income statement from the property as a business. This will allow foreigners to take advantage of a higher tax return.
The third rule involves filing a Form 1040NR so they can take advantage of the tax refunds. This is furthermore enhanced when the foreigner is a citizen of a country with existing tax exemption treaties with the US. If that is true, the investor must inform the withholding agent of such exemption.
Relative to that, the fourth rule involves the submission of the IRS Form W8BEN to the withholding agent. Of course, this does not include any state tax – which is a separate rule book in itself.
The last rule that foreign real estate investors must follow is knowing those state laws. Federal and State laws differ from each other so make sure you have to understand both to enjoy the income from your properties.
In any case, it is highly advised that you consult a real estate agent who is knowledgeable and specializes in foreign investments. The Guldi Group is well versed in the laws concerning the real estate industry. If you wish to know more about your investment options, please get in touch with us.
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