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FAQs About Owning Investment Property in the US

FAQs About Owning Investment Property in the US

What is the U.S. tax filing year?

The U.S. tax filing year for individual filers runs January 1st – December 31st

What tax returns have to be filed?

U.S. Non Resident Income Tax Return – Form 1040NR

See US Income Tax

Tangible Personal Property Tax Return to the Property Appraiser’s Office where your property is located

See Florida Tangible Personal Property Tax

Sales & Use Tax Returns – to the Florida Department of Revenue

See Sales & Use Tax

Tourist Development Tax Returns to the Tax Collector’s Office where your property is Located

See Florida County Tourist Development Tax

How will the IRS know that I rent my property?

If your management company provides bookings for you they are required to file IRS Form 1042-S to report the amount of rental income collected on your behalf during the tax year. This form is also copied to you. If you receive this form and do not file a 1040NR, the IRS will be aware that you have received and not reported income.

I did not make any profit, why do I need to file a tax return?

All property owners residing offshore who receive income from their rental homes, where IRS withholding has not been applied, must file a US income tax return to report the income and expenditure, even if you have no tax liability. In addition, for most non-resident taxpayers, annual losses roll over to future years. When you eventually sell your property these accumulated losses may be used to offset capital gains tax.

Who has to file tax returns?

All property owners must file an Income Tax Return to report rental income received where IRS withholding has not been applied. Where a property is owned by a married couple or by several unrelated individuals, each must file a separate return. If more than one property is owned, the tax return will include schedules to report the income and expenses for each property. Check your settlement statement and warranty deed to confirm the owners responsible for filing.

Tangible Tax, Sales & Use Tax and Tourist Development Tax Returns are submitted per property, regardless of the number of homeowners.

How will the County know that I have a rental property?

In order to rent your property you or your management company must apply for a license to allow guests to use your property. In addition, most properties owned by U.S. residents have a homestead exemption filed. Thus the County is easily able to assess those properties owned by a non-resident or out of County owner.

Why is 15% withheld from me when I sell my property?

US law requires that 15% of the gross sales price be retained by the closing agent and submitted to the IRS to cover any potential capital gains tax owed as a result of the sale. An application for exemption can be prepared and filed to the IRS allowing cleared funds to be released to you before the tax filing time (usually within 90 days of submission).

This process is extremely time sensitive; it is important that you notify your accountant when you are considering selling your property in order for your withholding application to be prepared by the closing date.

See Capital Gains Tax.

My accountant filed an Application for Withholding Certificate, why do I have to file a tax return as well?

The U.S. Government requires you to file a US Income Tax Return, Form 1040NR, for the year that you sell your property to report the transaction; you may be contacted several years after the sale for the relevant tax filing. The Withholding Certificate provided by the IRS clearly states “receiving a Withholding Certificate does not eliminate your requirement to file a final U.S. income tax return to report the sale transaction”.

In addition, because of the way that the IRS calculates Capital Gains Tax when reviewing the Application for a Withholding Certificate, you may, in fact, be due an additional refund of some or all of the withholding paid to the IRS.

I have just discovered that I should have been paying Sales & Use tax on rental income received directly by me, what should I do?

The Voluntary Disclosure program is available for you to report and pay overdue taxes due on rental income such as Sales & Use Tax and Tourist Development Tax. Generally, as long as you have not been previously contacted by the Florida Department of Revenue or Tax Collector’s Office you can present your information and pay any overdue taxes without penalty and with no, or reduced interest.

See What Is a Voluntary Disclosure of Florida State Sales & Use Tax?

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