Foreign Citizens Residing Outside the U.S. with Income Sourced in the U.S.

Foreign Citizens Residing Outside the U.S.

If you are a foreign citizen with US-sourced income (for example if you own a rental property in the US), you are required to file an annual Federal (and possibly State) tax return.

If you performed work for a U.S. employer who issued a W-2 in your name, you are also required to file U.S. federal and state returns - even if you had tax withholding throughout the year.

If you receive retirement distributions from a U.S. pension plan - you have to file a U.S. tax return to reconcile the amount of tax withheld with the amount that you owe and receive a refund.

If you have non-real estate investments in the U.S., such as an income-producing savings account, stocks, or bonds then in many occasions you can claim a refund for tax withheld by the withholding agent (bank or broker). You may be not required to file, but it is in your best interest to file it, otherwise you will not get back the excessive tax withheld. You may be able to recover the full amount of tax withheld if you live in a country that has a Tax Treaty with the U.S.

We will advise you on how to stop tax withholding in the future and avoid the need of recurring filing.

We help many foreign citizens handle their affairs with the IRS and are familiar with the issues you face.

Frequently Asked Questions

1. I’m a non-US citizen and not a GC holder. I do not live in the US, but I have rental properties in the US. Do I need to file a US tax return? What about State taxes?

Rental properties in the U.S. require annual nonresident tax return 1040NR to report gain or loss from rental activity.

Annual non-resident state return is required as well unless property is located in a tax-free state like TX.

Annual reporting is required even if you generate a loss. Furthermore, when you choose to sell your property, all accumulated losses (if any) are deducted from sales proceeds. Without annual reporting, these losses cannot be recovered. If property is idle (no rental activity), no reporting is required.

2. I have no income from an employer and no self-employment income and my sole source of income is from a rental property I own in the US. Do I still have to file a return?

The threshold for filing depends on two things -- your gross rental income (before expenses), and if you received a 1099-MISC.

If your gross rental income is above the filing threshold, you must file.

Alternatively, if you receive a 1099-MISC (usually from a management company that handles the rental), you must file even if you are below the threshold.

This applies to both federal and state.

3. I have a rental home in state with no income tax. Do i need to declare this somehow?

Federal Tax Return

There is no minimum income threshold for American rental properties to be reported on the Federal tax return. Therefore please complete the Rental Property sub-tab of the Passive Income tab of the Tax Questionnaire.

State Tax Return

In states with income tax:

Personal state tax return (resident or non-resident) is also required. Filing requirements depend on the particular state.

In states with no income tax:

If you own a rental home in a tax-free state outright you don't need to file personal state tax return. If property is owned through single member LLC, some states (i.e. TX) require franchise tax return.

Franchise tax return may also be required in a state that levy personal income tax (i.e. MD) in addition to the personal state tax return.

4. I am not a US citizen or GC holder, but I have had a US brokerage account. I sold my stocks and my US broker withheld capital gains tax. Can I get this back and get a refund?

Tax withheld on capital gains tax can be recovered and you can get a refund. Secondly, if there was also dividend income, then you may be eligible for a reduced tax rate if your country of residence has a tax treaty with the United States.

We would file a non-resident (form 1040NR) US tax return for you, claiming this refund. The cost of a standard 1040NR is $450/$550 (if over $100k).

5. I had paid foreign tax of $3,235. Form 1116 shows $3,005 as "disallowed" and $230 was utilized. Could you please explain this?

When a taxpayer excludes all or part of his income on form 2555 (Foreign Earned Income exclusion), foreign tax subject to credit is reduced, too. Instructions to form 1116 read: "Reduce taxes paid or accrued by the taxes allocable to any foreign earned income excluded on Form 2555 or Form 2555-EZ".

In other words, you cannot exclude income and then use tax paid on this income as a credit. A portion of income attributable to the excluded income is "disallowed" and the remaining foreign tax is applied for calculation of the credit towards U.S. tax.

6. I would like to start a business in the U.S. and need an EIN and ITIN - what is the process to get started?

If a non-US person wants to start business in the US they would need an individual tax number (ITIN) and also a tax identification number for the new US company they will establish.

To get the ITIN they should file form W-7 and to get the EIN they should file form SS-4. In order to start business in the US you would need to appoint a US-based company agent who will receive correspondence from the IRS. We would need the name and address of this agent.

This package (W-7 & SS-4) costs $500 together.

Further Reading