Tax Issues in the Purchase and Sale of US Property – Part Two
In part one, we outlined some of the key tax issues in the sale of US property by non-US citizens. Here, we go through some of the tax considerations in purchasing and maintaining US property.
Can non-US citizens purchase US property?
Yes! The US does not prohibit non-US citizens from buying and owning real estate in the country.
What are the main reasons that people purchase US property?
Some people may be looking at vacation properties in the US. Others may be interested in renting the property to create a new form of income. Others still may be considering a more permanent relocation to the US in the future. The geographical diversity of the country also makes it an appealing prospect for many potential buyers.
How will income from the US property be taxed?
The general rule is that income from US real estate will be taxed at 30%.
If you are predominantly using the property to produce income, e.g. from rentals, you have another option. Under the Internal Revenue Code section 871(d), you can elect to have all income from your property treated as connected with a trade or business in the US.
Taking this option will allow you to claim deductions attributable to the income from the property. It also means that only the net income from the property will be taxed.
I’ve heard about using an LLC to buy the property. What does this mean?
One of the biggest considerations is potential liability for people sustaining injuries on the property. For this reason, many people consider investing in the property as a limited liability company (LLC).
However, taxation of companies can differ from taxation of individuals, and this area can be quite complex.
What about inheritance tax?
It may not be something that we like to think about, but what happens to the property if we pass away is a serious consideration. This is particularly the case with US property, where inheritance tax is significant.
As always, variations will apply depending on your circumstances, but generally speaking, assets valued over $60,000 can be subject to inheritance tax.
The tax rules regulating the purchase and maintenance of US property by non-residents can be complicated, and will vary depending on each individual’s situations. If you have questions on any of the above, please feel free to reach out to the team at American Finance.
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Information provided on this website is for guidance purposes only and should not be construed or relied upon as formal tax, legal or financial advice.
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