Search This Blog

November 3, 2013

US Nonresidents Purchasing US Investment Property- IRS Tax Rules

US real estate can be a great investment and produce income as rental.  In most situations you can even obtain very favorable income tax treatment.  As a nonresident there are no restrictions on owning US real property for personal or rental purposes.

The Good Tax News:

  • No restrictions on US nonresidents investing in US rental properties.  Nonresidents income tax on the investment is the same as that paid by US residents if they make the proper election to have the rental treated as doing business in the US.
  • Residential rentals are depreciated over a 27.5 year period.  You must allocated the purchase price between the building (which can be depreciated) and the land which cannot be
    depreciated. The depreciation taken each year reduces your taxable income from the property.
  • You must file form 1040NR with the IRS each year and a state income tax return if the property is located in a state with income taxes (which is most likely).
  • If you wish to sell your original rental and trade into another one you are eligible to do so tax free if you qualify under the IRC 1031 tax free exchange rules. The new rental must still be located in the US.  You cannot tax free exchange into a rental property outside of the US.

The Bad News (with  possible solutions):
  • If the nonresident dies while owning the property the fair market value of the property will be subject to US estate tax to the extent it exceeds $60,000.    However, the property will then have a new stepped up basis for US income tax purposes equal to the fair market value on the estate tax return.  There are ownership methods  using foreign trusts or corporations which  can be used to avoid the estate tax.
We can advise you on all the  US tax aspects  ( and most legal and financial questions) involved in the purchase of real estate or businesses in the US while you are a nonresident.  Email us at or visit our website at or

No comments: