With the Bradenton, Sarasota & Lakewood Ranch areas being extremely popular destinations for investors from all over the world, many people purchase in the area without knowing their full responsibilities of rental income tax.
If you are a non-resident of the U.S. and Gulf Coast is collecting rental income on your behalf, then you are required to provide an International Tax Identification Number (ITIN) and submit a completed W-8ECI every three years to Gulf Coast.
Although we have made exceptions in the past, due to increased IRS enforcement we are now requiring compliance. Therefore, we are requiring all Non-Resident Owners to submit their completed W-8ECI form, including a valid ITIN no later than March 31, 2018. After this time, we will withhold 30% (10% for Canadian residents) of your rental income and remit it directly to the IRS on your behalf. For an in-depth explanation of the rules please click on this link. Foreign Owner Tax Help
We understand you may consider this unfair but we are subject to large fines if we fail to comply with regulatory guidelines. The following paragraph is taken from the IRS.Gov website.
A real property manager who collects rent on behalf of a foreign owner of real property is considered a withholding agent and is personally and primarily liable for any tax that must be withheld and must issue a Form 1042-S following the end of the year. The liability of the withholding agent includes amounts that should have been paid plus interest, penalties, and where applicable, criminal sanctions. Property managers who do not comply with these rules will be held liable (either individually or through their company) for 30 percent of gross rents, plus penalties and interest.
Harding Bell International, located in Orlando specializes in International Tax & Accounting and can assist our International Owners. If you click the link here https://hbitax.com/resource/ you will find their contact details and helpful resources of where to start, including ITIN requirements, necessary forms, and other supportive information. The process to obtain your ITIN takes about six to eight weeks. There are several options for submitting the application, this can even be done from overseas. If you are already in the process of applying for your ITIN please let us know.
The importance of compliance cannot be overstated. It does not just relate to the annual operating income of your rental property. In the past, many people have flown under the IRS radar but times have changed. The IRS has introduced measures to collect money when it comes time to sell the property. The IRS has always allowed the purchase real property in the US without an ITIN #. Although there are virtually zero restrictions to purchase, there are now restrictions when it becomes time to sell. The IRS does require an ITIN# and 15% of the gross sale amount will be withheld at closing to ensure all tax liabilities have been met. The only way to offset this withholding is to demonstrate timely tax reporting.
It is not all bad news. Yes, obtaining the ITIN# can be a hassle but the financial upside is clear to see. The US is an extremely favorable location for real estate investment, especially under the current administration. The ability to deduct real Investment expenses is significant. Interest, insurance, property taxes, HOA dues, management and maintenance fees and most importantly depreciation are all examples of big-ticket costs that can be offset against income and subsequent capital gains.