Managing Properties for Non-resident Aliens

Managing Properties for Non-Resident Aliens

A property manager (or tenant on an unmanaged property) is required to withhold and remit 30% of the rent on a property owned by a non-resident alien. This is not really a withholding tax as it will not be returned to the owner. There are ways to avoid doing this. The owner title the property in a domestic artificial entity or make an election to be taxed on a net basis.

The withheld money must be remitted within 10 days of receipt. This can be a real pain for the property manager. It really makes sense to be sure the owner uses one of the above options. The owners who get caught on this are usually owners of vacation homes who only rent the property out occasionally. There is still no reason not to re-title the property or file the election.

Most properties of this nature do not make a profit and would normally pay no taxes. The property would probably have a net operating loss carry over. A non-resident would probably not meet the criteria to take this loss against other income; but it could reduce the taxes due at the time of sale.

The negligent property manager could be liable for all or part of the taxes owed. If fraud is believed to be involved, criminal penalties may apply.

David Segrest is a REALTOR in Charlotte NC. His website is http:www.segrestrealty.com .