Federal and State Income Tax for Foreigners

[Javier Gaillard]

As a foreigner what is the tax rate for renting property? Is there a State and Federal income tax? I know some states don't charge income tax on rentals, but you still have to pay the Federal income tax.

Can you get a better tax rate if you form an LLC?

[Paul Sundin]

@Javier Gaillard

There are definetely state and federal tax issues to consider.  The three main US tax issues that foreign investors need to be aware of are: (1) income tax; (2) estate tax; and (3) gift tax.

For federal taxes, many foreign investors will find themselves being assessed tax at the same rates as US individuals. These rates begin at 10% and go up to the highest rate of 39.6%. Rental real estate will often generate depreciation expense and other direct expenses, so most investors will only pay rates at the lowest level of 10% (if they pay tax at all). The US tax code also has a very favorable long-term capital gains rate of 15% (subject to certain income).

The US has 50 states, but only 43 have a state income tax. But some states impose a transfer tax and other assessments that can complicate the situation.

Make sure you must consult a tax professional who has extensive knowledge of foreign tax issues.