Yaghouti Rohrberg Team

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Real Estate Taxes

Foreigners are not exempt from Real Estate Taxes


Taxes when holding as investment

The current tax rate is a flat 30% on the net rental income (unless reduced by an applicable income <ahref="http://www.irs.gov/businesses/small/international/article/0,,id=96454,00.html">tax treaty).

If the foreign holder is engaged in an active business or trade within the US the IRS will use progressive rates. Subletting a single apartment is not considered an active business.

More infohttp://www.irs.gov/businesses/small/international/article/0,,id=129631,00.html


Foreign Sellers Tax implications

If selling a house FIRPTA authorizes the US to charge tax on the disposition of Real Estate interest. The US buyer of such Real Estate has to withhold 10% of the amount realized on the disposition. The US buyer can be liable for the 10% if he/she forgets to withhold this amount.

Note that the 10% withholding is not the amount of tax actually due. It is simply an advance payment made at closing, and applied toward the foreign seller’s U.S income tax obligation arising from the sale of the U.S. property. Therefore you must file a income tax return in the year the property was sold.

The seller must obtain a Tax ID Number in order to meet seller’s obligations to the IRS. 

More info on http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html

New York State withholds almost 6.85% of the proceeds. 

California has the following rates

The withholding rate is 31/3 percent of the total sale price, or an optional gain on sale withholding based on the maximum tax rate on the gain on sale as follows:

  • 9.3 percent for individuals.
  • 8.84 percent for corporations.
  • 10.84 percent for banks and financial corporations.
  • 1.5 percent for S corporations.
  • 3.5 percent for financial S corporations

For more information <ahref="https://www.ftb.ca.gov/forms/misc/1016.pdf">https://www.ftb.ca.gov/forms/misc/1016.pdf 

Capital Gain Tax

Consider a 1031 exchange

If the exchange qualifies under U.S. law , it gives the opportunity to not pay taxes and no FIRPTA income or withholding tax will be due on the transaction. 

More info <ahref="http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html">http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html

Above information is subject to change and we do not guarantee accuracy. We strongly advise you to check with a local accountant.

Thanks To



Luis Villamarin