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I, as a non-resident alien investor who formed a LLC in New

York State....
I, as a non-resident alien investor who formed a LLC in New York State. This multi-member LLC elect to be taxed as partnership. I use this US LLC to buy rental properties in New York State.

Since it is a LLC, I think I don’t need to file tax by Form W-8ECI, right?

I know I am not allowed to work (including repairing and maintenance of those rental properties). But am I allowed to collect rent from the tenant on behalf of the LLC? Am I allowed to file eviction on behalf of the LLC?
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Answered in 21 minutes by:
10/24/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Customer:

good

Megan C :

That's great!

Megan C :

I'm sure you do know that you would be taxed on the rental income in the US

Megan C :

and as a nonresident alien, 30% of the rent would need to be withheld unless you submitted form W-8ECI

Customer:

I use a US LLC to buy rental properties. I have a EIN (Employer Indentification Number) filed with IRS.

Customer:

Am I get double taxed?

Megan C :

Yes, but if the LLC is taxed as a partnership, the LLC effectively pays no tax, and you are taxed individually

Megan C :

The LLC has no tax if it is a partnership

Megan C :

You will file form 1065 for the partnership, and then with that you will get a K-1 for which you will use on your 1040NR

Customer:

I treated the money the LLC used to invested in US rental properties, are borrowed from me. For the rent I collect on behalf of LLC, can I take the money out from the bank and pay interests and principles to me immediately?

Megan C :

You can pay yourself back, yes - but you will still owe US income tax on the rental income.

Megan C :

No matter how you structure the business, an LLC, corporation, anything - all will pay tax.

Customer:

What is the rate of my different tax bracket? Such as portion between 0 to $50,000 pay 17%? portion between $5000 to $10,000 pay 23%?


 

Megan C :

If you do not fill out form W-8ECI then it is 30%

Customer:

if I fill out W-8ECI, what's the rate in different brackets?

Megan C :

Let me check that for you as you are a nonresident alien

Customer:

I found for a US residents, portion of $0-27,000 is 15%; portion of $27001-45200 is 27.5%

Megan C :

That's not the tax brackets for US citizens.

Megan C :

They start at 10%

Customer:

what portion?

Megan C :

Your bracket would be the same as a US person for income effectively connected with a trade or business in the US

Customer:

That's including federal tax and State tax?

Megan C :

Let me copy those for you

Megan C :

Are you married or single?

Customer:

single

Megan C :

This is just federal tax, state tax will be in addition and I will get those rates for you

Megan C :

  • 10% on taxable income from $0 to $8,925, plus

  • 15% on taxable income over $8,925 to $36,250, plus

  • 25% on taxable income over $36,250 to $87,850, plus

  • 28% on taxable income over $87,850 to $183,250, plus

  • 33% on taxable income over $183,250 to $398,350, plus

  • 35% on taxable income over $398,350 to $400,000, plus

  • 39.6% on taxable income over $400,000.

Customer:

That's Federal tax. What's the New York State tax in different bracket?

Megan C :






























$0+4.00%
$8,000+4.50%
$11,000+5.25%
$13,000+5.90%
$20,000+6.85%
$200,000+7.85%
$500,000+8.97%
Megan C :

And you would NOT need to file form ECI, because the LLC is a US company

Megan C :

but you would be taxed at those rates

Customer:

someone told me under $4000, no tax. So that's not true.

Megan C :

No, if you have taxable income it is taxed.

Customer:

So I do NOT file W-8ECI. Just want to make sure since you first told me I need to file W-8ECI.

Megan C :

You are a multi member LLC, correct?

Megan C :

not a single member?

Customer:

Yes. Multi member elect to be taxed as partnership

Megan C :

Okay. The LLC is a US entity, so it would not need to submit form W-8ECI to the property management company

Megan C :

You would be taxed at the rates that I gave you, only if you are engaged in a trade or business in the US

Megan C :

If this is passive rental activity that you do not materially participate in, then you will be subject to a flat withholding tax of 30% on the gross rental proceeds

Customer:

confused. You just told me I will be taxed as same as a US person, and you sent me the table of different tax bracket. Now you say 30% flat rate.

Megan C :

No, I am saying that if you have income effectively connected with a trade or business in the US you will be taxed at those rates

Megan C :

If you are doing nothing with the rentals, just owning them passively, then there's a different way you are taxed.

Customer:

After my LLC buy those rental properties in US, how do I avoid to be a "passive rental activity"? I guess my LLC can not hold the rental property long and sit on the rent,

Megan C :

Are you going to participate in active management of the real estate?

Megan C :

You can do that even though you are non resident alien

Customer:

I have to flip it. fix and sell frequently, that's the active activity, right?

Customer:

What's the "active management" of real estate?

Megan C :

OK. You said rental properties...

Megan C :

if you are buying and reselling the properties, "flipping" them, then that's capital gains

Customer:

is "capital gains" passive activity?

Megan C :

Capital gains is where you purchase assets with the intent to resell them

Megan C :

Renting is where you place a tenant in the home and collect rent

Megan C :

Capital gains for a nonresident alien are a flat 30%

Megan C :

Unless, you are participating in an activity that is effectively connected to trade or business in the US

Megan C :

If you are actively taking part in the investment - purchasing the asset, overseeing the work done on the asset, and not just buying the asset and letting others fix it up, then you would be conducting a trade or business in the US

Megan C :

If you are just investing your money here, and someone else is overseeing the repair and upkeep of these properties then it's not effectively connected

Customer:

You said "oversee" (to be in charge of a group of workers and check that a piece of work is done satisfactorily). I know I am not allowed to work myself (including repairing and maintenance of those rental properties). You mean I should go to USA manage US workers there to repair, rennovate my LLC's rental properties. Am I allowed to be in USA to manage workers in USA?

Megan C : You are allowed to work on your own investments just not work for a wage
Customer:

so I can even do repair myself?

Customer:

This is a series question. Each time I come from Canada cross boarder US boarder, the US Custom will ask me, and I say something like "tenant call me to repair the toilet leaking, I come to fix myself."

Megan C : You can. It's your investment
Megan C : botXXXXX XXXXXne you're taxed at those graduates rated I gave you for federal and state
Customer:

In New York State, am I allowed to collect rent from the tenant on behalf of the LLC? Am I allowed to file eviction on behalf of the LLC?

Megan C :

Yes you would collect the rent, but the check would be made out to the LLC. You could evict the tenant as well

Customer:

Can my LLC partner and I file tax by ourself? If yes, which software do you recommend?

Megan C :

Yes, you could. You would have to use a software that can handle business returns

Megan C :

Have I provided you with excellent service today?

Customer:

Yes. Thank you!

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
Megan C and 87 other Finance Specialists are ready to help you
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Thanks, Henry for your positive rating. Please come back and visit me any time you need a tax, finance, or social security question answered. It was a pleasure working with you today.
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Customer reply replied 4 years ago

Thank you!

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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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