Sunday, June 1, 2014
Do foreigners living out the the US need to pay income tax and/or capital gain tax for US-based properties?
Do foreigners living out the the US need to pay income tax and/or capital gain tax for US-based properties?
I have been residing in the US (Chicago, IL) for two years (as a legal student) and am the owner of my apartment. I am considering renting it and then selling it after I leave the country and become a fiscal resident of Brazil. Will I be liable for income tax (in the US) on the rent that I'll be receiving (for my US apartment) ? What about capital gain tax when I eventually sell the apartment?
United States - 2 Answers
Random Answers, Critics, Comments, Opinions :
1 :
Well, some countries have special treaties with US and they do get a break for taxes. For example, a Taiwanese national do not need to pay taxes on bank interest if they have bank account in US. However, they still need to pay taxes on investment gains.
2 :
Unless there is a tax treaty that provides otherwise -- and there ins't one likely in this case -- you'll be subject to US taxation for the income from the rental and capital gains when you sell. Depending upon the timeline, you may qualify for an exclusion on the capital gain if you lived in the home as your principal residence for 2 of the 5 years immediately prior to the sale. The exclusion amount is $250,000 if your filing status is Single and $500,000 if your filing status is Married Filing Jointly. One caution on this, however. If you marry before you sell the property, you MUST file a joint return with your spouse to qualify for the exclusion on the gain. To do that, she will have to agree to have her world wide income taxed by the US in the year of the sale. Depending upon the numbers, this could kill the benefit of the exclusion if she has significant income. If she does not agree to be taxed by the US, you will have to file Married Filing Separately and will be ineligible for the exclusion. Since you are going to be renting it out, any depreciation allowed or allowable while you rented it out will be subject to recapture and taxation when you do sell even if you qualify for the exclusion.
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