Understanding The Taxes of Commercial Real Estate From a Non-resident’s Perspective
When you do not live in the country where you own commercial real estate it is important to understand how you will be taxed on rental income from your property. Sometimes it can be a daunting task to understand the tax code and what factors will contribute to your perceived inventory in that country. This is typically the case in North America, so if you were to live in Toronto for example and own a commercial building in Vermont, you would need to be very familiar with the taxable income rules and regulations of the United States even though you do not live there. Tax law can be confusing at times and tends to read like stereo instructions, so if you find yourself in this type of situation, you would do well to hire a property manager that is well-versed in the tax code.
When you attempt to come up with a taxable income figure as a non-resident, you can expect to include gains from the sale of the property or land rights and any royalties or rents that were received from the ownership of said property. The tax code is much more complicated than that but you’ve got the general idea and different states in the U.S. have slightly different requirements on how to go about closing on a sale or declaring your income. It is best to consult your CPA and property manager for how best to shelter your income, but for non-residents it is generally more difficult because the tax requirements are greater than if you were to be a resident.
There are rules that can change the status of your tax code. For example, a non-resident that has citizenship may find fewer obstacles to ownership of commercial property than one who does not. Also, foreign investors are generally taxed at a flat rate of 30% on any income earned for commercial real estate owned in the United States. There is also the matter of declaring your foreign status in order to be taxed at the proper rate.
These are all things that your property manager and accountant can discuss with you to ensure you are compliant with laws and withholding the proper amount of income for tax purposes. For the most part non-resident investors should not have too much difficulty in purchasing and renting commercial real estate in the United States and Canada. Many times you can expect to pay a larger down payment if you are not a resident and a monthly percentage of rental income may have to be submitted to IRS or CRA for withholding purposes, but you can review these requirements with your accountant before investing to fully understand your obligations.
Overall a property manager like HighGate can steer you toward the right resources for understanding the tax code for non-residents that are seeking to invest in commercial real estate in North America and the typical investor will not find it to be much more difficult than any other real estate venture that is not their primary residence.