Real estate has long been a popular investment for individuals and corporations alike, and the United States is no exception. However, for foreign investors, there are certain tax implications that must be considered when investing in US real estate. In this blog post, we’ll provide an overview of how the US tax system affects foreign investors in US real estate.

The first thing to consider is the type of investment structure that will be used. Foreign investors have several options, including investing directly in real estate or through a partnership, corporation, or limited liability company (LLC). Each option has its own tax implications and it’s important to work with a qualified US tax accountant or attorney to determine the best structure for your specific situation.

One of the biggest tax implications for foreign investors is the withholding tax on rental income. The US requires foreign investors to pay a 30% withholding tax on gross rental income unless an income tax treaty between the US and the investor’s home country provides for a lower rate. It’s important to note that this withholding tax is not a final tax liability and the foreign investor may be able to claim a refund or credit on their US tax return.

In addition to rental income, foreign investors must also consider the tax implications of selling US real estate. When a foreign investor sells US real estate, they may be subject to capital gains tax, which is currently 20% for non-resident aliens. There are certain exceptions and deductions that may apply, such as the foreign tax credit and the reduced withholding rate under the Foreign Investment in Real Property Tax Act (FIRPTA). However, navigating these exceptions and deductions can be complex and it’s important to work with a qualified US tax professional.

Another factor to consider is state and local taxes. Each state and locality may have their own tax laws and regulations, and it’s important to work with a qualified US tax professional who is familiar with the specific laws and regulations of the state in which the real estate is located.

In summary, investing in US real estate as a foreign investor comes with its own set of tax implications. From rental income to capital gains tax, it’s important to work with a qualified US tax accountant or attorney to ensure compliance with all applicable tax laws and regulations.

If you’re a foreign (Canadian) investor interested in investing in US real estate, or if you’re currently invested and need help navigating the US tax system, contact JTT Accounting. Our team of experienced tax professionals can help you minimize your tax liability and ensure compliance with all applicable tax laws and regulations.