Chinese Property Owners Warming up to the US Rental Business
Question: I am a Chinese National who owns US property and is currently renting it out. I have a managing company that takes care of all the administrative duties. From what I gather from the IRS site, http://www.irs.gov/Individuals/Inter…-Real-Property, I will owe 30% on my gross rent receipts and cannot deduct any expenses since it is considered passive activity. Is there any way to reduce this liability?
Answer: According to this IRS information page, as a Non Resident Alien with rental income, you can elect for the US rental to be taxed as ECI, claim the usual rental expenses and be taxed on your Net Rental Income. This should be the standard tax planning for a NON –Resident with US property income. If you choose not to elect for ECI, your managing company has more important role to play as far as tax withholding is concerned. Unless you have an ITIN and have completed W8-ECI forms, your administrative company is required to withhold 30% from the gross rental receipts and account to the IRS for those withholdings. The 30% would only stop once you obtain an ITIN and completes form W8-ECI to confirm that you will make the ECI election
***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**