Non-residents are taxed in the USA on income arising from USA sources only. You are considered tax resident in the USA if you spend at least 183 days there per year or if your main resident home is located in the USA.
You will also be obliged to file a tax return detailing your worldwide income in your home (tax resident) country.
Where a double taxation agreement (DTA) exists between the USA and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country.
Tax on purchase:
US Transfer Tax is charged on the purchase of a property. The rate is set by each State and can vary but average between 1% - 2.5% of the purchase price.
Ongoing property taxes:
USA Income Tax is levied on USA rents received. There are two methods of taxation :
(1) A standard flat rate of tax at 30% is withheld on gross rental income. This tax is withheld by the letting agent or tenant of the property. No tax return is required in this case.
(2) Alternatively you can opt to have your rental income taxed as ‘Effectively Connected Income’ which is effectively business income. Costs deductions including mortgage interest and depreciation is allowable against rents received. The net income is taxed at varying rates from 15%-35%. If your income & costs are high this option makes more sense.
If you are non-resident in the USA, you must register for a Taxpayer Identification Number (ITIN) in order to be able to file an income tax return.
The Federal Income Tax return must be filed by 15 June in the year following the relevant tax year.
Local Property Taxes (Rates) : An annual property tax is levied on your property. Rates are set by each State and vary depending on the State and the value of your property eg a rate of c.1.5% of the value of the property applies in Illinois State.
Transfer taxes:
USA Capital Gains Tax (CGT) : If you hold the property for more than one year, then the USA CGT rate is between 8%-15% depending on value of gain. Depreciation claimed in your Income Tax calculations will be deducted from costs in arriving at the taxable gain for CGT purposes. Non-resident individuals are subject to tax by the Foreign Investors in Real Property Tax Act (FIRPTA) on the sale of property located in the US. Under this Act the buyer is obliged to withhold 10% of the sale price and submit the tax to the US Tax Authorities on account for the seller. A refund can be claimed by the seller if the ultimate tax liability is lower.
USA Inheritance Tax (Estate Tax) or Gift Tax : is payable by non-residents depending on a number of factors including the inherited amount and the relationship between the deceased/donor & the beneficiary as well as the citizenship and/or domicile status of the
beneficiary. Please contact us at info@dgitax.com for further details.
Worldwide income
If you are resident in Ireland or the UK, you will be obliged to declare and file your USA income in Ireland/ UK also. There is a double taxation agreement between the USA and Ireland / the UK so relief for certain USA taxes will be given against Irish/ UK taxes payable on your American income.