HOW TO FILE A TAX RETURN ON PROPERTY INVESTED IN THE U.S. ROUND ROCK TEXAS

A new tax season always begins when the year approaches an end. This is when taxpayers should be ready to file a tax return if they have bought an investment house in the United States. We would take a look at how taxpayers can properly file an investment property tax return.

Firstly, taxpayers should be aware of their status in the United States. In addition to distinguishing between citizens and non-citizens, the tax law divides residents into foreigners with residency (Resident Alien) and foreigners with non-residency (Non-resident Alien), namely residents and non-residents.The US tax law imposes two different sets of rules on residents and non-residents, and each regulation also has advantages and disadvantages for residents and non-residents. The US tax law uses the green card verification rules and residence time rules to determine whether you are a resident as defined by the tax law.

GREEN CARD VERIFICATION RULES

A green card holder is a US resident. Whether you actually live in the United States or overseas, as long as you have a green card, you are a resident of the tax law. Even if you get a green card and go back to your country to work or do business on your own, you do not live or work in the United States and the source of your income does not come from the United States, you still have to truthfully report tax to the United States.

RESIDENCE TIME RULES

Unlike the immigration law, if the tax year stays in the United States for less than 31 days, the tax law is considered as a non-resident but if the tax year stays in the United States for more than 31 days, the “residence day” will begin, and if the residence date exceeds 183 days, the tax law will be recognized as a resident. 

This is the calculation formula for residence day:

Residence day = (number of days of stay in the year × 100%) + (number of days of stay in the previous year × 1/3) + (number of days of stay in the previous year × 1/6).

Some people are exempted from the residence time rule, mainly including the following:　

Foreign government personnel

Persons teaching or training in the United States with a J-type (exchanging visiting scholar) visa and a Q-type (visiting the United States to participate in the International Cultural Exchange Program) visa

International students holding F (student) visa and M (short-term vocational skills learning) visa

Short-term professional athletes participating in the United States

Due to the existence of the residence time rule, businessmen or family members who frequently travel to and from the United States should pay special attention to the number of days they stay in the United States, otherwise they will accidentally appear as residents although they have no right of abode, but are recognized by the tax law. It will be quite troublesome to deal with the situation as a US resident. In summary, the tax law stipulates that all citizens, residents, and people who stay in the United States for more than 183 days (except those who are exempted from the residence time rule) are within the scope of taxation.

Non-residents of the United States who own only U.S. real estate may wonder if it is necessary to pay U.S. taxes. Generally, as a non-resident who only holds a U.S. real estate, income outside the United States is not subject to U.S. personal income tax. However, rental income, or income from the sale of U.S. real estate, is subject to U.S. income tax       

HOW THE RENT INCOME OF RESIDENTS AND NON-RESIDENTS ARE TAXED

US residents are generally taxed on global income, just like US citizens. They need to declare once a year and declare the rental income. Rental expenses can be offset against rental income, while net rental income is taxed at the cumulative tax rate.

Non-residents receive rental

 

from real estate in the United States generally as withholding income tax at 30% of the total rental income. It is for this reason that the lessee or real estate management company (if involved) is obliged to withhold tax, and is about to pay 30% of the net after-tax remittance payment to the non-resident owner. Non-residents do not need to file an annual income tax return to report the rental income they receive.

However, the US tax law allows non-residents to file annual income tax returns, as explained further below. When non-resident aliens invest in real estate in the United States and rent it out, they need to declare their personal income tax of 1040NR to the US government.

Real estate-related expenses (such as property fees, real estate taxes, water and electricity costs, maintenance costs, etc.) can be deducted accordingly, and only net income needs to be taxed. Non-residents may avoid the 30% withholding on the rental income by providing a form W-8ECI to the rental agent. The form informs the rental agent that the owner would like to treat the rental activity as a U.S. trade and return to report the rental activity.

Assuming a property is worth US $500,000, the annual rental income is US$ 30,000. After deducting property fees, real estate taxes, basic maintenance, utilities, and depreciation costs, the total rental income is US $10,000. The US dollar is in compliance with the two-tiered tax rate of 10% and 15%.

At the same time, the net income from renting real estate also needs to declare personal income tax to the state where it is located. State taxes vary from state to state. Therefore, under normal circumstances, if a non-resident foreigner owns rental property income in the United States, each year, two tax forms need to be filed, one for the federal personal income tax to the federal government and one for the state where the property is declared state personal income tax. The cut-off date for personal income tax is usually April 15th, which declares the personal income from January to December of the previous year.

CASES WHERE THERE IS NO TAX RETURN

If the taxpayer owes the U.S. government taxes and fails to pay within the tax deadline, he will be fined by the U.S. Tax Administration and charged high interest. The IRS regulations are that if the US tax is late and the tax is owed to the IRS, there will be three kinds of fines:

ü Failure to declare the fine in time

ü Penalty for late payment of taxes, and

ü Late fees

For this reason, it is very important to file taxes in a timely manner. For non-tax residents in the United States, especially those with real estate and financial investors in the United States, the normal filing of U.S. taxes is an important factor to ensure that their financial interests in the United States are not disturbed, and it can also ensure that their investment income in the United States is only collected reasonably. The US Internal Revenue Service has a detailed explanation of taxation issues for non-U.S. Residents, and gives all U.S. non-residents the right to choose how to proceed with tax treatment in all their specific investments. Then, the normal declaration of US income tax for non-U.S. Residents is generally considered to be the best way to deal with it. Not only can it reflect the performance of non-U.S. Residents strictly complying with U.S. laws, but it can only be levied a reasonable tax. For residents, if they have income in the United States, they should file a tax return correctly and properly.

In addition, non-U.S. Residents who normally declare income and pay taxes within the United States can largely avoid the tax inspection and tax inspections conducted by the Internal Revenue Service. If it is spot-checked by the US Internal Revenue Service and determined not to pay or evade taxes on time, it will not only be subject to high fines, but even the property in the United States will be affected.　

At the same time, the records of the US Internal Revenue Service and the visa application of the US Embassy are related to each other (the US visa application form requires visa applicants to fill in the US personal tax identification number), so the poor tax record will greatly affect the renewal of the US visa Application, and a good tax filing record helps non-residents to obtain a U.S. visa again. Tax Returns