Can Non-U.S. Citizens Purchase Property in the United States?

Should a Non-US Citizen Buy U.S. Property: Taxes & Reporting

Should a Non-US Citizen Buy U.S. Property 

One benefit that the United States offers that other countries do not offer is that taxpayers can acquire property without being considered a U.S. citizen or even a permanent resident of the United States. As a result, oftentimes non-citizens will acquire US property for investment purposes. Whether it is to buy and sell properties, rent properties, or for other purposes come with there are various tax hurdles and pitfalls to be aware of for taxpayers who are not U.S. citizens but want to or are planning to acquire US property. Let’s walk through the basics of some of the common tax issues to be aware of when acquiring US property as a non-citizen.

Non-Citizen vs NRA

First, it is important to determine whether or not the taxpayer is a US person or not. This is crucial because non-us persons who are considered non-resident aliens are subject to FIRPTA (Foreign Investment in Real Property Tax Act). If the person is a permanent resident, then FIRPTA does generally not apply. Instead, if the taxpayer is considered a non-resident alien, then they may be subject to FIRPTA.

FATCA and Rental Withholding

When a person acquires real estate in the United States and they’re renting out that property, technically the owner is supposed to withhold 30% of the rent. Even if the owner hires a manager to handle the property, technically as the owner of the property they may still be considered a withholding agent and therefore required to deposit the necessary funds. Failure to do so may subject the taxpayer to fines and penalties.

FIRPTA 

FIRPTA is the Foreign Investment in Real Property Tax Act. In general, capital gains are not taxable to non-resident aliens — but this does not include most US-based real estate. As a result, when a foreign person owns US property and they are planning on selling the property, then there are various withholding requirements of 15% of the sale price — not 15% of the actual potential gain. Especially in a down market in which there may not be much gain, the withholding amount may far exceed any potential profitability. Taxpayers who are non-resident aliens and considering selling property they own in the United States will want to try to qualify for a withholding exception — so timely FIRPTA tax planning is important.

Owning Real Estate in a Foreign Corporation (5471)

If a foreign person owns US property in a foreign company, it is important to realize that they may have a form 5472 filing requirement (Noting, 45472 can be very complicated depending on the number of transactions in a year). Likewise, if that foreign person ends up becoming a US person then that company may become subject to Form 5471 reporting as a US person that owns a foreign company great if the foreign companies are owned by US shareholders and more than 50% by US persons, it may become a Controlled Foreign Corporation with issues such as Subpart F Income, GILTI, etc. It can get very complicated if that foreign company has both US-based income from US property, along with any foreign property owned in that same entity.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.