How Property Management Company Handles a Rental Income

One of our rental property owners was upset when we asked him to complete w-9 form. Then he said that he does not have the U.S. Tax ID. Many foreign real estate investors often face the same problem. Likely, this is rather a formal procedure than a problem. What foreign property owner needs to do is to apply for ITIN or TAX ID. Without TAX ID, rental property management project may not succeed.

Rental property management company Mila Realty offers its nonresident homeowners a simple and convenient application process. We hire a licensed and approved by Internal Revenue Services (IRS) tax agent. A tax agent completes an application and emails to the homeowner for a signature. Property owner needs to return signed application by email. Since tax agent is in Kissimmee, Florida, and homeowner often is outside of the U.S., a brief Skype conference will be scheduled to verify rental property owner’s identity. Property manager creates a letter to IRS asking to assign an ITIN number to the homeowner. The main purpose of having a tax Id is to report a renting income that rental property may generate. Therefore, Tax ID is a must for every foreign investor.

IRS said that 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. This is why property manager needs to make sure that foreign homeowner obtains Tax ID. At the end of the year property management company will provide 1099 form, which will report all the income that rental property produced. Property managers who do not comply with these rules are liable, either individually or through their company, for 30 percent of gross rents, plus penalties and interest. It takes some time IRS to review the application and assign a Tax ID number. While application is pending, property manager may need to withhold 30 percent from the homeowner’s rental income.

When foreign homeowners receive 1099 form, they need to file a tax return. Normally, homeowners hire tax agents. Rental Property manager will advise homeowner about local experts. Per IRS, in the U.S., a rental income is always taxable regardless of the foreign investor’s status and regardless of whether the U.S. has an income treaty with the foreign investor’s home country. A nonresident homeowner who fails to submit a timely filed income tax return loses the ability to claim deductions against the rental income. As a result, the gross rents will be subject to the 30 percent tax, penalties, and more liability.

Note that this article does not provide any legal advises to its readers.