Listed below are the primary taxation and compliance issues for US rental property(ies) held by a U.S. or Foreign LLC, Partnership or Corporation.
Please note: the information and filing deadlines provided below for Tangible Personal Property Tax, Property or Real Estate Tax, Hotel License and Local Business Tax are specific to the State of Florida. Please contact our office for information relating to the State where your property is located.
As you may know if you already own or intend to buy investment or rental property in the US, and you wish to use a “CORPORATE” vehicle, then your options include:
- U.S. LLC (Limited Liability Company) – “Flow-through for sole members”; taxed as an individual or partnership (more than one member); consider for married owners – personal tax rates; limited liability; does not avoid US Estate tax
- U.S. LLP (Limited Liability Partnership) – Limited liability suitable for multiple owners; each gets personal allowance; avoid double taxation from UK and Canada; does not avoid US Estate tax
- U.S. C-CORP (Corporation) – Higher taxes on profits and distributions/dividends including potential withholding; limited liability; avoids US Estate tax
- Foreign Corporation – Owning property directly or through vehicle(s) above; exposure to branch profits tax
Each entity has important steps it is required to take under U.S. tax law. These can be quite complex but are easy to manage with the proper advice and guidance therefore avoiding potential filing penalties. Some of these are set out below:
Income Tax Returns
All entities receiving income from rental properties, must file a U.S. Income Tax Return. A State Income Tax Return is also required for certain entities. Some entities, for example a Domestic Corporation, are required to file regardless of activity until they are dissolved. Partners of LLC’s and LLP’s must also file Individual Income Tax Returns.
Income Tax Filing Deadlines
Federal and State filing deadlines vary depending on the year end month but are generally due by the 15th of the third or fourth month following year end. Significant penalties apply to partners/partnerships for late filing even where no tax is due.
Tangible Personal Property Tax
Tangible Personal Property Tax is an ad valorem tax assessed against the furniture, fixtures and equipment located in businesses and rental property. Tax returns must be filed to the Property Appraisers’ office by April 1st. Tax billing follows processing of the tax return by the county and is sent out on November 1st each year with payment due by March 31st. A $25,000 exemption applies in Florida, effective January 1st, 2008. More info
Property or Real Estate Taxes
Property or Real Estate Taxes are payable annually. The Property Appraiser’s Office establishes the assessed value of a property and prepares the tax roll. Tax notices are served to the owner’s last record of address or, where the property owner pays through an escrow account and their mortgage company has requested to be sent the tax bill, the owner will receive a copy of the notice. Tax statements are normally mailed out on or before November 1st each year. More info
Sales & Use Tax and Tourist Development Tax
If you rent your property for periods of less than six months you will be required to collect and pay Sales & Use Tax and Tourist Development Tax on rental income received. Your management company will usually collect and report all sales and tourist development tax on the rentals that they handle. However, if you receive rental income in your home country you will need to collect and report sales and tourist development tax on this income either through your management company or direct with the relevant authorities. If you choose to deal directly, you can make application to the State and County to set up these accounts, alternatively we will prepare and file submissions on your behalf to set up your accounts and assist with the initial filings. More info on Sales & Use Tax | More info on Tourist Development Tax
Bureau of Economic Analysis
All foreign investments in US business enterprises in which a foreign person owns a ten-percent-or-more interest are subject to reporting, including all ownership of real estate, improved and unimproved.
Local Business Tax (previously Occupational License)
Required by homeowners who rent their US property. Renewed annually to the Tax Collectors Office (in the County where the rental property is located). The application for this license is usually handled by your managing agent but you may also be required to file if you intend renting your property directly. More info
If you rent your property for periods of less than six months you are required to display a Florida Hotel License. The application and renewal of this license is usually handled by your management company but we recommend that you keep a copy in your files.
Annual Report is required to be filed with the Department of State where your entity is registered and where business is transacted.
Individual Taxpayer Identification Number (ITIN) & Employer Identification Number (EIN) – All owners of US rental property, not resident in the US, must have an ITIN or, in the case of entities, an EIN.
This “Certificate of Foreign Person’s Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the United States” is required by your management company. Without this form in their files, they are required by U.S. federal law to withhold 30% of your rental income and pay that amount to the IRS
Whilst some of the above items will be serviced by your management company; the preparation and filing of US Income Tax Return(s) to the IRS, Tangible Personal Property Tax Return(s) to the County and filings to the Bureau of Economic Analysis are usually handled by your U.S. accountant.