Hello and thank you for using Just Answer,Rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investor's personal tax status and regardless of whether the United States has an income treaty with the foreign investor's home country.Ownership of real property is not considered a U.S. trade or business if it consists of merely passive activity such as a net lease in which the lessee pays rent, as well as all taxes, operating expenses, repairs, and interest in principal on existing mortgages and insurance in connection with the property.
Now please allow one moment while I look at the exact treaty because passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
I saw nothing in the treaty that reduced the withholding amount or that changed it to only the net.
If you by filing the W8 have opted to have this as a business then you would file a US 1040NR and claim your expenses against the income each April.
If you were to give this property to your daughter she would need to report the gift but would not be taxed on the gift. She would also include the rental in her US return but would be allowed to use (to her benefit) any loss on the property.
You would have to check with your own tax advisor in Sweden about any possible taxation there should you decide to transfer the property to your daughter now as a gift.
>If you by filing the W8 have opted to have this as a business
Did you request that they not withhold on the rents when you completed the W8?
If you did then you will be required to file a US return
Please clarify. Not opting for any business. Just net rental income/loss from one tenant.
Did you request that the management company not withhold taxes on teh rents?
the rents* sorry
No W8 completed yet. The rental property manager is requesting W*Ben to be filled out.
Ok, they need that by US tax law. They will be withholding 30% on the gross (before expenses)
>Did you request that the management company not withhold taxes on teh rents?
How to request?
You would have a treaty provision portion on the W8 BEN
under Sweden treaty, zero percent withholding?
there is no treaty provision specific to US Sweden that allows for the management company to withhold on Net instead of gross
Please clarify "withhold on Net instead of gross"
Real estate property manager is hired by the Swedish couple.
Treaty provisions may allow for the withholding on rental after expenses are deducted
The US Sweden treaty does not allow for that
The management company would need to withhold 30% tax on the Gross (total rents received)
30% tax on the Gross?
When you file the US 1040NR you can claim the expenses and lower the taxable amount
That is quite a bit on about $1,xxx.
30% tax is withheld and paid to US by the management company
It is because the US can get it easier form a US management company then they could from a nonresident alien
any suggestion in this kind of predicament?
There is no way around it unless you gift the property to your US daughter
US management company hired by the married couple.
what is no US management company is hired?
US management company hired by the married couple. The US company has a US tax obligation
If no management company then the renter is supposed to withhold
that is true.
so TIN for both husband and Wife need to be applied for? just by the husband only?
without TIN, W-8BEN cannot be completed.
Whoever owns the property as both would file the US nonresident return
property in both names.
You can still send them the W8 (it stays with the company) and you are not claiming any treaty benefit
teh US tax return will need the ITIN of both'
without ITIN, can W8 be completed and given to the property manager.
If you do not have one you leave that blank
what to write in the box for ITIN?
then apply for ITIN for the annual(2013) tax return?
Yes, W7 with the 1040NR returnIf you do not wish to deal with the US tax on real property used for income, you could gift the property to your daughter.
or just add daughter's name on the title instead of gifting the whole?
Then you would still own US real property, nothing changes except percentage of income
Your positive rating is always thanks enough.
We appreciate your continued support.
to summarise, your answer is just fill out W8 leaving TIN blank for now.
Yes one for each of you
one from husband and another from wife?
You are most welcome
Is Form W-8ECI applicable? The Form W-8BEN is used for income that is not effectively connected. Is rental income on renting out a residential condo in the US considered NOT effectively connected?
There exists a US-Sweden tax treaty. Can you double check the US-Sweden tax treaty (IRS publication 515 shows 15% reduced rate withholding on dividend)? You stated, "The management company would need to withhold 30% tax on the Gross (total rents received)" Swedish Individuals who are liable to Swedish tax have to pay income tax in Sweden on their worldwide income. there will be double taxation if 30% is withheld. Is not it?
>Rental is effectively connected.
Should Form W-8ECI (effectively connected.income) be used then instead of W-8BEN?
Link for your info - stating no 30% withholding required if Form W-8ECI is used:
>merely passive activity such as a net lease
No, NOT a net lease at all in the current matter; lessee does NOT pay Real Estate taxes, repairs, and insurance in connection with the rented 3-bedroom apartment property. The property owner pays the said rental expenses and claims depreciation.
>If you do not have one you leave that blank
Does the W8 ECI REQUIRE an ITIN?