Legal FAQs for REALTORS®
— Landlord-Tenant Issues
Withholding Rental Income of a Foreign Person
Who does the IRS consider to be a “foreign person”? (Oct. 19, 2012)
A “foreign person” includes nonresident alien individuals and foreign entities. U.S. citizens, persons with green cards, or persons who meet the substantial presence test for the calendar year are not foreign persons. To meet the substantial presence test, a person must be physically present in the United States on at least: (1) 31 days during the calendar year, and … (2) 183 days during the current year and preceding 2 years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
Can I serve as a property manager for rental property owned by a non-U.S. citizen? (Oct. 19, 2012)
Yes. A Texas licensee can manage properties in Texas whether the owner is a U.S. citizen or not. Property managers, however, should be aware of IRS requirements concerning the rental income of foreign persons. Unless a foreign person has identified the rental income on IRS Form W-8ECI (which requires a valid U.S. tax identification number for the foreign landlord) and provided a copy of the form to the property manager, the property manager should withhold thirty percent (30%) of collected rental payments. Withholdings, if any, must then be timely remitted to the IRS. A property manager that fails to do this may face personally liability for the tax amounts that should have been paid, plus interest, penalties, and where applicable, criminal sanctions. Property managers also have an obligation each year to report annual rents collected on behalf of foreign persons on IRS Forms 1042 and 1042-S.
Can a non-U.S. citizen own rental property in Texas? (Oct. 19, 2012)
Yes. There is no requirement that a person be a U.S. citizen to own rental property in Texas.
When must withholdings be deposited with the government? (Oct. 19, 2012)
If total withholdings are $2,000 or more on the 7th, 15th, 22nd, or last day of the month, then you must deposit the taxes within 3 business days. If total withholdings are $200 or more, but less than $2,000, at the end of any month, then you must deposit the taxes within 15 days. If total withholdings are less than $200 at the end of a calendar year, then you must either: (1) pay the taxes with your Form 1042, or … (2) deposit the entire amount by March 15 of the following calendar year. Be aware that all withheld taxes must be deposited by electronic funds transfers. Typically, the transfers are made using the Electronic Federal Tax Payment System (EFTPS). https://www.eftps.gov/eftps/
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