NON RESIDENT INDIVIDUALS RENTING US REAL PROPERTY INTERESTS

30% Withholding Rules on Rental Income

Foreign persons renting real property interests within the United States are subject to the 30% withholding rules on their gross rental income unless they make an election under IRC Section 871(d) to treat the rental activity as effectively connected to a US trade or business (ECI). Internal Revenue Code (IRC) Sections 871 and 1441.

Rental Expenses Not Allowed as Deductions

Unless the proper ECI election is made under IRC Section 871(d), and all tax returns are filed timely, deductions on your rental activities are not allowed. Your gross income flow from your rental is considered FDAP income and is subject to a 30% withholding tax.

What Foreign Taxpayers Need to Know and Steps That They Need To Take

1- Obtain a taxpayer identification number from the IRS or one of its agents by completing and filing a form W-7.

2- Fill out a form W-8 ECI and serve it on the management company or renter that is paying you the rental income.

3- Read Treasury Reg § 1.1441-4 "Exemptions from withholding for certain effectively connected income and other amounts" so you can effectively educate the management company that the withholding of the 30% tax is not necessary.

4- File a timely income tax return, claiming the income from the rental activity.