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Understanding US Rental Property Income Withholding

Understanding US Rental Property Income Withholding

Rental Income withholding of 30% is applied to gross rental income received by a managing or rental agent on behalf of a non-resident owner of U.S. rental property.

Non-resident rental property owner

Foreign individuals and foreign corporations may elect to have their passive rental income taxed as if it were effectively connected with the U.S. trade or business. Once such an election is made by attaching a declaration to a timely filed income tax return, there is no obligation to withhold even in a net-lease situation. Once made, the election may not be revoked without the consent of the IRS.  Unless the foreign investor has properly informed the property manager that the rental income is to be treated as “effectively connected income” by submitting to the property manager with a fully completed Form W-8ECI the property manager should withhold thirty percent (30 percent) of the gross rental receipts so as to avoid personal liability.

U.S. real estate professionals and rental agents/property managers

U.S. real estate professionals and rental agents/property managers are encountering an increasing number of situations that involve foreign persons’ acquiring U.S. real estate as a part-time residence, for investment or in some cases to conduct U.S. business. The U.S. tax rules that apply to ownership and dispositions of U.S. real estate by foreign persons are different in some important respects from the rules that apply to US persons.  Click here for your responsibilities and information relating to withholding on rental income.

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