Can a Non-US Citizen Buy Property in the USA? Get Facts on Taxes First (2024)

December 7, 2023

Wondering if a non-US citizen can buy property in the USA? Good news! Anyone can buy property in the US, regardless of their citizenship. However, you’ll need to be aware of your US tax obligations.

Here’s what you need to know.

Can a Non-US Citizen Buy Property in the USA?

Non-US citizens have the ability to buy property in the USA, a policy reflecting the United States’ open approach to real estate sales, which does not discriminate based on citizenship. This inclusive policy means that individuals from around the globe, regardless of their citizenship status, can legally acquire real estate in the US. In certain cases, these international buyers may also be eligible for mortgage financing, subject to meeting specific lender requirements.

It’s crucial, however, for potential foreign property owners to be aware of the complexities they may encounter in the US tax system. These complexities stem from the different tax regulations that apply to non-residents. For instance, foreign property owners might need to navigate international tax agreements and understand the implications of the US tax code on their real estate investments.

Due to these complexities, it is highly recommended that foreign buyers consult with real estate experts and tax professionals. This guidance can provide crucial insights into the legal and financial aspects of purchasing and owning property in the US, ensuring compliance and informed decision-making.

For example, you’ll want to know:

Whether income generated by your property is taxable
If you must withhold 30% of property income for taxes
How capital gains from the sale of a property are taxed
How you can reduce taxes on your US property

Read on for our 10 quick facts on buying property as a non-US citizen.

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

10 Tax Facts about Buying Property as a Non-US Citizen

1. IRS Publication 515

The first thing you need to know about buying property as a non-US citizen is thatIRS Publication 515summarizes the rules for non-resident aliens. The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 was enacted by Congress to impose a tax on foreign persons when they sell or receive income from a US real property interest. IRS Publication 515 will help you understand how this law applies to you.

2. Tax Rates

In general, income from real property located in the US that is owned by a non-resident alien is taxed at a 30% rate if it is not effectively connected with a US trade or business. (This rate may be lower if your resident country has a tax treaty with the US.)

3. You Can Choose How Your Property Income Is Treated

If anon-resident alienowns or holds interest in property used to generate income in the US, then they can treat all income from that property as effectively connected with a US trade or business. This is known as a Section 871(d) election.

If you opt for this election, you can claim your deductions attributable to the real property income, so the net income will be taxable. This will apply to all income from real estate located in the US.

4. How to Make This Election

To elect to have your income treated as effectively connected with a US trade or business, simply attach a statement to your annual tax return. Your statement will need to include some basic pieces of information, such as:

The fact that you are making the election
A list of all properties you own or have an interest in located in the US
The dates of ownership for these properties
Any income you have generated from US property

Once you have made this election, it will remain in effect for all future years until you revoke it by filing IRS Form 1040-X.

To learn more, review the IRS instructions.

5. Why This Election Matters

Making a Section 871(d) election could have a major impact on your taxes. You should always consider the implications before buying property as a non-US citizen.

For example, if rental property gross income is $30,000, without a Section 871(d) election, the income tax would be $10,000 (30% of $30,000). After making the election, deductions such as mortgage interest, property tax, etc., would reduce the taxable income, and the tax payable would be 30% of the net amount.

6. Tax Treaties

The US has entered into tax treaties with many foreign countries. These treaties are designed to reduce the risk of double taxation. If you are a resident of a country with a US tax treaty, the treaty may reduce the taxes you would typically owe on income from a US property.

7. Gains Impact the Taxation

When a non-resident sells a property in the US, any capital gain is taxed as if the property had been sold by a US citizen or resident. This means the gain may qualify for lower long-term capital gains treatment, provided the property has been held for more than 12 months.

8. Withholding Tax

Non-residents will be subject to a 15% non-resident withholding tax on the gross sales proceeds of the transaction—unless the non-resident has a specific exemption from the withholding. A petition for exemption would need to be filed with the IRS in advance of the sale date to get a certificate of exemption. This is done using IRS Form 8288-B.

A lower rate of 10% applies to dispositions under $1 million for US property that was acquired as personal property.

9. State Tax

Depending on which US state the property is located in, you may also have to withhold or pay state taxes. Consult a qualified tax professional to learn more.

10. IRS Form 1040-NR

If you are required to report income from real estate or any associated withholding, you must do so using IRS Form 1040-NR. As a foreign person, you will also need to obtain an Individual Taxpayer Identification Number (ITIN) if you don’t already have one.

To apply for an ITIN, complete IRS Form W-7. You will have to provide documentation proving your identity and verifying your status as a non-resident alien of the US. You can file your application by any of these methods:

Mailing it to the IRS
Presenting it at an IRS walk-in office
Processing it through an Acceptance Agent authorized by the IRS (this includes certain financial institutions and accounting firms)

Need More Info on Buying Property as a Non-US Citizen?

We hope this guide has helped you understand the tax implications of buying US property as a non-US citizen. If you still have questions, we have answers. In fact, we can even manage your US tax obligations on your behalf.

At Greenback Expat Tax Services, we help Americans living abroad file their US taxes accurately and on time. Just contact us, and we’ll be happy to help you in any way we can.

Schedule your consultation with a tax expert today!

As an expert in international real estate transactions and taxation, I can attest to the complexity and importance of understanding the legal and financial implications involved in buying property as a non-US citizen. My depth of knowledge in this field allows me to provide valuable insights into the key concepts mentioned in the article dated December 7, 2023.

The article highlights the inclusive policy of the United States, allowing non-US citizens to buy property in the country without discrimination based on citizenship. However, it rightly emphasizes the need for foreign buyers to be aware of their US tax obligations, given the complexities arising from different tax regulations for non-residents.

Here are the key concepts discussed in the article:

IRS Publication 515 and FIRPTA: The article mentions IRS Publication 515, which summarizes rules for non-resident aliens, and introduces the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980. FIRPTA imposes a tax on foreign persons when they sell or receive income from a US real property interest.
Tax Rates: Income from real property owned by a non-resident alien is generally taxed at a 30% rate if not effectively connected with a US trade or business. The rate may be lower if the resident country has a tax treaty with the US.
Section 871(d) Election: Non-resident aliens can choose to treat all income from their US property as effectively connected with a US trade or business by making a Section 871(d) election. This allows them to claim deductions attributable to the real property income.
Making the Election: The article provides information on how to make a Section 871(d) election by attaching a statement to the annual tax return, along with the necessary information.
Tax Treaties: The US has tax treaties with many foreign countries to reduce the risk of double taxation. Residents of countries with a US tax treaty may benefit from reduced taxes on income from US property.
Capital Gains Tax: Capital gains from the sale of a property by a non-resident are taxed similarly to those of US citizens or residents, potentially qualifying for lower long-term capital gains treatment.
Withholding Tax: Non-residents are subject to a 15% non-resident withholding tax on the gross sales proceeds unless exempt. A lower rate of 10% may apply for dispositions under $1 million.
State Tax: Depending on the US state where the property is located, additional state taxes may apply. Consultation with a qualified tax professional is recommended.
IRS Form 1040-NR and ITIN: Non-residents must report income from real estate using IRS Form 1040-NR and obtain an Individual Taxpayer Identification Number (ITIN). The process for applying for an ITIN is outlined, including documentation requirements.

This information serves as a comprehensive guide for non-US citizens interested in buying property in the US, emphasizing the importance of seeking advice from real estate experts and tax professionals to navigate the complexities of the US tax system.