Nonresident aliens must pay a 30 percent flat tax on their U.S.
rental property income. This tax must be paid in the year in which they receive
the income.
There is, however, an exception that allows nonresident aliens to claim a
deduction for rental expenses and be taxed at graduated rates on the net income.
They can elect to treat rental income from real property as income effectively
connected with a trade or business. Those electing to claim deductions on rental
property must attach a statement to their tax return indicating this preference.
Or they may use form W-8 ECI, "Foreign Person's Claim of Income Effectively
Connected with the Conduct of a Trade or Business in the United States."
Nonresident aliens must file their taxes using Form 1040NR, "U.S
Nonresident Alien Income Tax Return." They also must file Schedule E to
reflect the income and expenses of their rental property, and Form 4562,
"Depreciation and Amortization," to report allowable depreciation. If
the rental property in the United States is owned jointly, both owners must file
the required tax forms to report their share of the income and expenses. If the
nonresident owners do not have a taxpayer identification number, they must
obtain one. Nonresident aliens may use Form W-7, "Application for IRS
Individual Taxpayer Identification Number," to apply for an Individual
Taxpayer Identification Number (ITIN). Remember to file all forms and schedules
by the due date.
When a nonresident alien sells their U.S. real property, the buyer is
required to withhold 10 percent of the sales price and forward the withholding
tax to the IRS. There are, however, exceptions to this withholding requirement.
IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign
Corporations, contains further details.
More information is also available in IRS Publication 519, U.S. Tax Guide
for Aliens. Get publications, tax forms and instructions by visiting the IRS Web
Site at www.irs.gov or by writing to the IRS Area Distribution Center, P.O. Box
85074, Richmond, VA 23261-5074, USA.
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