Hi,

My wife and I are G4 visa holders in the US. As per my understanding:

1. My income from the international organization (UN) is tax exempt.
2. If my wife works outside the UN organization, her income is taxable
3. My interest on bank deposits/CD are taxable
4. Any income on the capital gains is taxable - flat rate is 30%

Questions:
1. If I rent out a property in US, is the rent taxable at 30% (I don't know about the home country tax treaty details so assuming a flat rate of 30%).

2. If I sell a property for say 300K in US, would IRS withhold 30% i.e. 90K?
If I sell a propoery and invest the proceeds in purchase of another property, how do the taxes work?

3. If the answers to above two questions are affirmative, are the G4 visa holders better of renting a home in US rather than owning it even if the length of duration of stay is over 10 years?

4. Is it a must to file 1040NR even if the income from other sources is below $3000?

I am not exposed to US taxes so please bear with the basic questions. Any help is appreciated.

Thanks
Paddy

Paddy:

The flat rate of 30% may be adjusted by the tax treaty. To know for sure, need to know what your home country is.

1) Your PAYING rent is NOT a taxable event. However, if you own a piece of property on which you collect rent, the income is taxed at the normal, progressive tax rates, just like a U.S. citizen.

2) You may be able to do a 1031 exchange, which allows you to sell one property and invest the money into another property, thus deferring any capital gains.

3) That depends if your spouse is being taxed on her salary. By jointly owning the house, she can deduct the mortgage interest on her return IF she files as a resident alien.

4) You need to file the Form 1040NR if you own property that you are renting. This is required to file the Schedule E to account for the rental income, even if the Schedule E inocme is less than $3,000.

Hi,

Thanks for your response. Appreciate it.

I read up on 1040NR on IRS.gov and it seems that I can file my rent income it as 'Effectively Connected Income' thus can show property taxes and other expenditures as deductions. I understand that I can show the depreciation and the insurance charges as deduction items also.

Is it true that the depreciation can be calculated as a straight line depreciation assuming the life of the property to be 25 years?

Is it true that my wife ( a non resident ) and I would need to file separate 1040NR showing 50% of ownership of the real estate? (we are joint owners). I presume that Schedule E would need to be separate as well.

Is it true that the tax payable will be on the net income and would fall in the tax bracket as for a US citizen?

Do you see any downside or pre-conditions for electing to file as 'Effectively Connected Income'?

Thanks a lot,
Paddy

Paddy:

Actually, the depreciation lifespan for residential real estate is 27.5 years using straight-line depreciation.

Yes, you and your wife would each need to file separate Forms 1040NR with a Schedule E to reflect the 50% ownership of the property, assuming that BOTH of your names are on the title/deed.

Yes, you would pay taxes under the same rates as a U.S. citizen.

Whether there is a downside or not is irrelevant. You have NO CHOICE in the matter; if you have residential real estate property that you rent, you MUST file the return and report the income as 'Effectively Connected Income'.

If you need professional help to file, contact me at [email protected].

Thanks a lot for the clarification.
I will definitely get I touch with you if I need further help.

Regards
Paddy

Glad to help!