What is Section 871 D election?
If you, a nonresident alien, have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can elect under Internal Revenue Code section 871(d) to treat all income from U.S. real property as effectively connected income with a trade or …
Why might a foreign taxpayer want to make an election under IRC section 871 d’or 882 d )?
Pursuant to ยงยง871(d) and 882(d), a non-resident alien and a foreign corporation, respectively, may elect to treat income and expenses from U.S. property that is not effectively connected as being effectively connected to a U.S. trade or business. The election will be effective for all subsequent tax years.
How does the IRS find out about unreported rental income?
The IRS can find out about unreported rental income through tax audits. An audit can be triggered through random selection, computer screening, and related taxpayers. Once you are selected for a tax audit, you will be contacted via mail to start the process of reviewing your records.
Do foreigners pay tax on US real estate?
As a general rule, a non-US person who rents out his or her US home is subject to a 30% withholding tax imposed on the gross amount of each rental payment.
How do I claim portfolio interest exemption?
Portfolio interest is entirely exempt from the 30% US withholding tax. To qualify as portfolio interest, the loan must be from a foreign lender and the following requirements must be met: The interest is paid on debt that is in registered form. The loan cannot be from a bank lending in the ordinary course of business.
What is nonresident alien?
A nonresident alien is an alien who has not passed the green card test or the substantial presence test.
Can a foreign corporation own US real estate?
The gain from the sale of an interest in a foreign corporation is not subject to tax under FIRPTA. Thus, a foreign person may own US real property indirectly through a foreign corporation and ultimately sell the shares of that foreign corporation and avoid US tax on the gain from the sale.
Is bank interest a portfolio interest?
To qualify as portfolio interest, the loan must be from a foreign lender and the following requirements must be met: The interest is paid on debt that is in registered form. The loan cannot be from a bank lending in the ordinary course of business. The interest payments cannot be contingent.