Real estate is taxed under its own set of rules. Rental losses are limited, buildings are depreciated over decades, exchanges can defer gain, and foreign sellers face withholding at closing. We work with individual investors and property-holding entities, including owners who live outside the US.
The points where tax and accounting rules come into play are numbered.
Numbered points are explained below.
At: Acquire
An exchange can defer the gain on a sale, but only if it qualifies. Section 1031 now applies only to exchanges of real property; property held mainly for sale does not qualify, and US property cannot be exchanged for foreign property.
We review the properties against these rules and report each exchange on Form 8824.
At: Rent or develop
For a nonresident owner, the way US rent is taxed decides whether expenses count at all. A nonresident’s US rental income is taxed at 30% of gross rents unless the owner elects to treat it as effectively connected income; with the election, expenses are deductible and net income is taxed at graduated rates on Form 1040-NR.
We compare the two with your figures and prepare the return.
At: Operate
A rental loss often cannot reduce the tax on your salary or business income in the year it happens. Rental activities are generally passive, even if you are closely involved, unless you qualify as a real estate professional; passive losses beyond passive income are carried forward on Form 8582, not deducted now.
We check whether an exception applies to you and track the carryforwards from year to year.
At: Sell
A foreign seller can have part of the sale price held back at closing. When a foreign person sells US real property, the buyer generally must withhold 15% of the amount realized and report it on Forms 8288 and 8288-A; a withholding certificate, applied for on Form 8288-B, can reduce it.
We look at whether a certificate is worth applying for and prepare the US return that reports the actual gain.
Schedule E, depreciation and passive loss carryforwards run through every year’s return.
Nonresident owners need Form 1040-NR, the rental income election and FIRPTA planning before a sale.
Property-by-property books make depreciation, basis and exchange calculations reliable.
Lenders on larger portfolios often ask for compiled or reviewed statements.
Usually not in full. Rental losses are generally passive and limited to passive income, with carryforward of the rest. There are exceptions, including for real estate professionals. We check which apply to you.
The buyer generally withholds 15% of the amount realized under FIRPTA. You then file a US return to report the actual gain, which may lead to a refund of excess withholding. A withholding certificate applied for before closing can reduce the amount withheld.
No. Since 2018, Section 1031 applies only to real property.