All Forum Posts by: Paul Sundin

In many situations, a foreign investor will obtain an ITIN when a tax return is filed. However, as a result of withholding requirements, many real estate syndicators will be seeking an ITIN upfront. The foreign investor will then need to obtain the ITIN prior to filing a tax return. 

Form W7 and proof of identity will need to be submitted. There are many documents that can prove identity, but the most common is your passport. In addition, the non-resident must include a copy of the section of the partnership agreement that displays the partnership’s employer identification number (EIN) along with demonstrating that they are a partner in the partnership that is conducting business in the U.S.

Make sure you discuss with a qualified CPA or tax professional before you start buying properties.

I agree that diligence needs to be done upfront so you don't have any tax issues later.  There are many different ways that foreign investors can structure deals and be taxed here in the U.S.  

Non-resident investors may find that it is beneficial for them to hold title in a corporation (either foreign or U.S. based), limited liability company ("LLC"), a trust, or even a partnership. In most cases, individual ownership or ownership through an LLC taxed as a disregarded entity will result in the lowest income tax liability. However, depending on the investor's situation, a different structure may be beneficial as a result of estate or gift tax issues.

In addition, tax treaties are in place with many countries that can alter the taxation.  The advantages and disadvantages of each structure should be carefully analyzed with a tax professional and attorney who understand tax planning for non-resident real estate investors.

@Daniel Fuchs As a CPA who works with non-resident real estate investors, there are a few things you need to consider:

1) You need to consider the best entity structure for any real estate investments. This includes determining whether their interest is held individually or through an entity like an LLC or corporation.

2) Even if you don't have a tax liability, you will generally be required to file a U.S. tax return in addition to a state return in many cases.

3) If title is being held individually (or through an LLC as a disregarded entity), you need an Individual Taxpayer Identification Number ("ITIN"). This is a tax processing number that is issued by the IRS.

4) If you do not reside in the U.S. at all you will typically only be taxed on U.S. source income. But if you decide to reside in the U.S. for extended periods you can find yourself being taxed on worldwide income.

5) Income is subject to U.S. foreign withholding requirements unless an exception is obtained. Many states also have withholding requirements as well so this can be a little tricky.  This just means that an estimated tax will be withheld by the partnership, remitted to the IRS or state, and will be credited to you when you file your tax return.

6) In addition to federal tax issues, investors must also consider U.S. estate and gift taxes. This is often overlooked by investors.

7) The U.S. tax code establishes certain “default” rules for non-residents. But the U.S. has established tax treaties with many countries that can alter the default tax treatment.

Each investor situation is different.  Before you make your first investment, make sure that you engage a CPA and attorney who understand real estate investment in the US by non-residents.

The biggest reason is the maintenance headaches. Sure you have that with apartments, but the benefit of MHP investing in just renting the dirt. Low maintenance and high returns.

Unfortunately this is clearly a conflict.