​After selling Key West homes to new friends from Italy (Mortgage) and England (Cash Buy), I jumped into the lambyrinthian world of real estate taxes for foreign nations who buy real estate in the US. True, US real estate transactions are open and transparent. Appraisals, inspections and surveys are recorded. Commissions, fees and other costs are well established and not subject to manipulation. Titles are thoroughly researched and are free from challenges. But - taxes for foreign buyers and sellers can be crazy. I strongly recommend an expert.
I use Jason Brown of Alpern Rosenthal in West Palm Beach, Fl
Alpern Rosenthal is a Top 100 Accounting Firm that specializes in financial services, wealth management and business consulting for US and international customers. One of their specialties is tax advice for non-US citizens who purchase real estate in the US.
The first item to understand is - who are you? Taxes are determined by a set of definitions:
- Alien - Any person who is not a citizen of the US.
- Resident Alien - An Alien who is resident in the US for income tax purposes.
- Non-resident Alien - An Alien who is not resident in the US for income tax purposes.
- Domiciled Alien - An Alien who is considered a permanent US resident for gift and estate tax purposes.
Why is it important to know if you are a Resident or Non-Resident Alien?
The income of a Resident Alien is generally taxed at the same rate as a US citizen; that is a Resident Alien is taxed on all sources of income, even those sources outside the US. A Non-Resident Alien is usually taxed only on income received from sources inside the US.
What defines a Resident Alien? A Resident Alien is defined three ways.
- They have a green card, or
- They live in the US for 183 days during the tax year, or
- They live in the US for at least 31 days during the present tax year, plus a total of 183 days during the sum of the present year plus the two previous years, calculated as, all of this year, 1/3 of the days from last year and 1/6 of the days from the year before that.
For example:
All of 2011 80 days
1/3 of 180 days in 2010 60 days
1/6 of 120 days in 2009 20 days
Total days 2009 - 2011 160 days < 183 days
Not a Resident Alien therefore No Tax
Regardless of residency status, I strongly recommend you obtain an Individual Taxpayer Identification Number (ITIN).
What is an ITIN? An ITIN is a tax processing number isssued by the IRS to individuals not eligible for a SSN and is issued to non US citizens regardless of immigration status. An ITIN is for federal tax filing purposes only.
Some people might recommend not obtaining an ITIN until you need it; i.e., not until you are filing a federal tax return. I recommend you obtain an ITIN as soon as you purchase real estate as it will make the subsequent selling process quicker, easier and perhaps less costly.
Even if you are a non-resident alien filing to reduce or eliminate the FIRPTA amount, you need an ITIN. FIRPTA is the Foreign Investor Real Property Tax Act. Simply stated FIRPTA means any time a non-US citizen sells real estate over $300,000, then 10% of the sale price is set aside to pay federal taxes.
How do I get an ITIN?
Use the IRS form W-7 to obtain an ITIN. The easiest way to obtain the W-7 form is to download the form from the IRS web site.
There are a host of tax issues involved with non-US citizens selling real estate not covered here:
- Real estate held by a foreign company
- Real estate held by a US company owned by a foreign company
- Real estate transferred as part of an estate
- Real estate exchanged as part of a 1031 tax deferred exchange.
- Real estate used as investment property and rents received.
Personally I would not call the IRS on the phone. If and when anyone answers the phone, the advice available will not be specific enough to satisfy your individual needs. Neither I nor any other Realtor is qualified to answer complex questions about the US tax code as pertains to foreign nationals buying or selling US real estate.
The best person to call for answers and assistance is Jason Brown.
Jason Brown can be reached at 561.689.7888.
If you have any comments or questions on this article, please contact me here.
Good luck!
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