Tax on real estate for non US citizens.

As a non-U.S. person owning U.S. real estate, you would almost certainly be subject to taxation under the "Foreign Investment in Real Property Act" ("FIRPTA"). Basically, FIRPTA requires that you treat your ownership of the apartment as if that ownership were a business. You will therefore be required to pay U.S. income tax on your net rental income (i.e., your gross income from renting the property minus your yearly tax deductions for depreciation, maintenance, mortgage interest, etc.). You will also be required to file U.S. tax returns in the same manner as any other U.S. business owner (I recommend that you speak to a U.S. accountant or attorney regarding your specific filing deadline(s)).

Likewise, any capital gain realized upon the sale of your apartment is considered a capital gain relating to your U.S. real estate holding business. Capital gain, at its most basic, is equal to the amount you receive for the property minus the amount you paid for the property. You should also be aware that FIRPTA requires any purchaser of your apartment to withhold 10% of the gross sales proceeds and pay this over to the U.S. Treasury. If you hold the property in the name of a U.S. LLC, the LLC will be required to withhold 35% of the capital gain realized at the time of the sale and pay this 35% amount over to the U.S. Treasury (prior to the distribution, to you, of the remaining sales proceeds).

With respect to the question of whether it would be better to hold property in the name of a LLC (or another kind of business entity), there are a number of somewhat tricky issues involved, including the possibility of your incurring exposure to U.S. Estate Tax and the requirement that a U.S. business entity may have to withhold on distributions to you of the net rental income. A consultation with an accountant or attorney should provide insight into how best to address these issues given your specific factual circumstances.

Lindsay Rubel, Esq., J.D., LL.M. (Taxation)
www.lebur.com