Starting a Business as a Non-Resident
Starting a business in the United States to use to purchase investment rental properties require certain forms to be filed in order to start your business. As a Non-Resident, your typical business entity type will be a Limited Liability Company or LLC. This allows you to have one owner (which will default to a single member LLC) or multiple owners. Once you have figured out your ownership structure, the next step is to get your Employer Identification Number or EIN.
As a Non-US Citizens, you have two ways of applying for the EIN. Option one is if you have had your ITIN (Individual Taxpayer Identification Number) for more than a year, you can go to IRS.gov and apply directly through their internet application. If you do not have your ITIN or just recently applied for it, you have to use Form SS4 and either mail in the application to the IRS or fax it directly to them. This process can take about two to four weeks to complete. The IRS will mail you the EIN number within two weeks. With this number you then will want to register your business with your State you will be operating in.
Tax Return Filings
Getting your business started is just the first step in complying with US Tax Laws. The next filing will be your annual Tax Returns. If you are the only owner of your business, and you formed as an LLC, then you will only need to file Form 1040NR personal tax return. The rental income and expenses will be reported on Schedule E of the return. Any income after expenses will result in potential taxes due.
If you have multiple owners (Partners), then the LLC will file Form 1065 Partnership Return. Any income that is reported on Form 1065 will be passed through to the personal tax return or Form 1040NR. You will then pay any tax as stated in the above paragraph.
Things do get complicated with foreign-owned LLC’s that file Form 1065 however. The IRS wants the partnership to prepay tax for the Non-Resident Partners when the tax return is filed. Those Non-Resident Partners would then claim that money as a refund or go towards the taxes due on their personal return Form 1040NR.
Filing a Partnership Return with Foreign Owners can be complex, but CPA Solutions here to assist you in those filing requirements.
Selling Your Investment Property
Selling your investment property as a US Non-Resident requires certain forms to be filed with the IRS at closing. This is called FIRPTA or Foreign Investment in Real Property Tax Act. At closing, the title company that is handling the closing is required to withhold 15% of the Gross Sales price. At this point, you have two options.
Option One is to have the Title Company forward the funds directly to the IRS using Forms 8288 and 8288A. You would then use the Returned Stamped (IRS will certify with a stamp) Form 8288A to claim the money as a refund on your Form 1040NR.
Option Two is usually the more desired option, but not all title companies allow this option. At the day of closing on the property, the Title Company will put that 15% into a separate bank account while Form 8288B FIRPTA Application is sent to the IRS. This Form 8288B requests that the IRS either remove the withholding requirement or reduce the required withholding. This option takes about two to four months and may allow you to get most if not all of the 15% withholding back more quickly.
There is one exemption to FIRPTA. If the property selling price is under $300,000 and the buyers will occupy the property as their permanent residence, then the sale can be exempt from FIRPTA. The Title Company should be able the waiver for you.
CPA Solutions is here to help. We are experts in filing these forms and helping to navigate you through the complicated process of selling your investment property. For more information, please call or email: 407.650.9088 or info@MyCPASolutions.com