NON-RESIDENT ALIEN INVESTORS

FIRPTA typically requires that taxes be withheld monthly on gross rental income for non-resident aliens. Passive rental income for foreign investors is subject to a flat 30% withholding tax. The withholding requirement is on gross rather than net income and the responsibility to collect this may apply to the leasing broker or property manager.  Foreign investor clients should be referred to an attorney or CPA prior to purchasing an investment property.

According to the IRS:

Before agreeing to manage U.S. real property for a foreign taxpayer, a real estate professional or rental agent should discuss with the foreign client whether the rental income will be taxed as investment income through withholding, or on a net income basis as, “effectively connected with a U.S. trade or business,” without withholding (although the owner may have to file estimated tax returns).

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