3 Things You Should Know About Renting out Property in NYC If You’re a Non-Citizen

Most New Yorkers can’t afford to buy an investment property, however, for those who can do that and can handle the responsibilities of being a landlord, it’s a good way to make some extra money each month. And these days, it's easier to become an owner in NYC because of the coronavirus pandemic. But being a landlord, especially if you’re a non-citizen, it’s a big responsibility. Here are some things you should know about renting out property in NYC if you’re a non-citizen: 

Renting Out Property

When renting out a property in New York, foreign investors should contact a local agent for listing and finding suitable tenants.

A good agent will advertise a property for rent on popular internet platforms. In addition, the agent will show the property to potential tenants and advertises its availability for rent. In other words, the help of a good real estate agent can mean a quick search for tenants and, on the contrary, his absence threatens to vacate your property for many months in a row.

The same can be said for the help of a New York City real estate attorney. Foreign buyers should contact a lawyer who will prepare the lease and perform due diligence on potential tenants. These steps will help the foreign homeowner to minimize legal risks, including the risk of non-payment by tenants.

Taxation of rental income

The use of an inappropriate holding structure in combination with local and federal taxes can result in rental income tax liabilities of up to 65% (including the tax on repatriation of income).

Taxation when selling property

The type of holding structure also affects the amount of taxes levied on the sale of a property. If an inappropriate structure is used, taxes on sales income, including taxes on repatriation of profits to the owner's country of residence, can be as high as 65%.

In addition, foreign property owners in New York should consider the requirements of the Foreign Real Estate Investment Tax Act (FIRPTA) and withholding tax requirements.

According to FIRPTA law, any person who purchases real estate in the United States from a foreign seller is required to withhold 10% (at a purchase price of $ 300,000 to $ 1 million) or 15% (if the purchase price exceeds $ 1 million) of the total purchase price, and transfer the specified the amount at the disposal of the IRS.

Likewise, the New York City government requires a withholding amount equal to 8.82% of the expected realized capital gains from the sale. Fulfilling these withholding tax requirements may result in the seller not having enough cash to cover the costs of closing the sale.

However, with proper planning, the source of income tax under FIRPTA can be reduced or eliminated altogether. You can hire a real estate accountant to avoid high rental income tax liabilities. 

By understanding all the stages of the process of buying and selling real estate in New York, as well as with appropriate planning, foreign buyers will be able to easily implement real estate transactions in New York and minimize their tax liabilities in the United States.