United States of America - Tax Overview

Non-resident property owners in the US are liable to pay taxes on US derived rental income and must apply for a US Individual Taxpayer Identification Number (ITIN) if they do not already hold a Social Security Number (SSN.)

Non-residents seeking to become permanently resident for taxation purposes in the US must pass one of the two tests: the green card test or the substantial presence test for the calendar year (January 1-December 31.)

Unlike resident aliens who are taxed on their worldwide income similar to US citizens, non-resident aliens are taxed only on their income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States.

US Income Taxes:

A non-resident’s US income is divided into 2 listed below each with a differentiating tax rate:

US Income that is effectively connected with a trade or business in the United States
US Income that is not effectively connected with a trade or business in the United States

Income which is not effectively connected with a trade or business is taxed at a flat 30% rate whereas effectively connected income is taxed at graduated rates with deductions allowed.
If non-resident property owners with real-estate in the US can choose to treat all income from that property as income, effectively connected with a trade or business in the United States.

US Tax ID Number:

Non-residents property owners are required by the Inland Revenue Service (IRS) to have an Individual Taxation Identification Number (ITIN) where they do not have a Social Security Number (SSN) similar to the NHS number in the UK.

A Certified Acceptance Agent is authorized by the IRS to authenticate documentation required for an ITIN application. The normal ITIN application process requires the applicant to make an appointment with their local US Embassy to have their passport notarized before the US Notary. This can result in considerable commuting time, loss of business time and additional costs.
Property Tax International can provide a Certifying Acceptance Agent service saving applicants time and reducing costs associated with the application. Click here to find out more.

Buying a US property:

Any can purchase a property in the US. Property purchase costs vary between 3% - 5% of the cost of the property.

US Property & Real Estate Taxes:

Each State have their own right to implement whatever rates they deem fair provided they do not interfere with the Federal Government so rates can vary widely depending on the location in question.

US property taxes are based on the fair market value of the property and have increased in recent times to mirror similar rates in other countries with some States exceeding 5%. In some States, it is permissible to separate the real estate tax, into two separate taxes-one for the land value and one on the building value.

Renting a US Property:

Generally, cash or the fair market value of property received for the use of real estate or personal property is taxable as rental income. Certain expenses incurred with the renting of a property are allowable as deductions against rental income.

Two methods of taxation:

cash basis method applies when rental income is counted as income with expenses deducted as they are received
accrual method applies where income is reported when it is earned rather than when it was received with deductions taken as they happen rather than when they are paid.

US Capital Gains Tax

Individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income in the US, but the rate of tax payable for individuals is lower on "long-term capital gains", which are gains on assets that had been held for over one year before being sold.

The long-term tax rate for gains made was reduced to 15% in 2003 or to 5% for individuals in the lowest two income tax brackets. Short-term capital gains are taxed at the higher rate ordinary income tax rate. The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, has been extended through 2010. In 2011 these reduced tax rates will "sunset", or revert to the rates in effect before 2003, which were generally 20%.

A withholding tax of 10% from the agreed sale price is retained by the buyer which is paid over to the IRS to cover the sellers' tax obligations. A balancing statement should be filed to determine if an overpayment has been made a tax refund due.

US Estate & gift tax

US Estate tax may apply to somebody's taxable estate at his death. The taxable estate is the gross estate less allowable deductions.

US gift tax applies when property is transferred as a gift to a family member, friend or associate.
The Tax Filing Deadline in the US is April 15th the following year after income was first received.

Worldwide income

Non-Resident property owners may be liable to declare US rental income as worldwide income within their annual tax return.

UK and Irish residents are obliged to declare US sourced income in their annual resident tax return. There is a Double Tax Treaty agreement between US, the UK and Ireland so relief for certain French taxes will be given against Irish/ UK taxes payable on your US property.

Property Tax International specialise in the completion and filing of non-resident US income tax returns. PTI also provide a complete range of Irish and UK domestic tax filing services for the self-assessed and self-employed.



The information provided above is intended as a guide only. While Property Tax International Limited makes every effort to ensure that the information contained herein is accurate, we take no responsibility or liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon.
Page added August 2010