Taxation of Rental Income Derived from Real Property located in the U.S. for Non-Resident Aliens Residing in Germany

Taxation of Rental Income Derived from Real Property located in the U.S. for Non-Resident Aliens Residing in Germany

Taxation under U.S. Tax Laws

The U.S. can tax rental income from real property located in the U.S.. See Art. 6 (3) German-American Income Tax Treaty.

The income of a non-resident alien is subject to U.S. income tax. Rental income associated with rental properties located within the U.S. is characterized as U.S. source income. Rental income from real property located in the U.S. is always U.S. source income (IRC Sec. 861(a)(4)). Accordingly, U.S. sourced rental income is subject to U.S. taxation.

Pursuant to IRC Sec. 6012, every natural person with a gross income that exceeds the personal exemption plus the basic standard deduction must file a tax return. For a non-resident alien, the declaration is carried out using Form 1040NR.

U.S. Withholding Tax

When distributing rental income to a non-resident alien, the withholding agent mustwithhold 30% of the payment amount (i.e., gross proceeds) and forward the withheld funds  directly to the IRS, the U.S. tax authority. If the the withholding agent (typically a rental agency, realtor, etc.) has fulfilled this obligation by submitting Form 1042-S a tax return may not be required. If the withheld taxes exceed the individual’s tax liability, a tax return is typically not required. However, the withheld tax often exceeds the tax liability of the individual and a tax return should be filed to recover any excessive amounts paid.  –. If payment of tax at the individual tax rate and on the basis of net income is desired, a corresponding request would have to be submitted and a tax return filed.

Taxation in Germany

Under Treaty law the rental income derived from real property located in the U.S is exempt from taxation. See Art. 23 (3) a) of the German-American Income Tax Treaty. However, it is subject to a progression proviso. See Art. 6 in conjunction with Art. 23 (3) a) of the German-American Income Tax Treaty and Sect. 32b of the German Income Tax Act (EStG). Thus, the income is to be declared on the income tax declaration.

Rate this page
 
 
 
 
 
 
 
1 Rates (100 %)
Rate
 
 
 
 
 
 
1
5
5
 

Do you have any questions? We would be pleased to assist you. To make getting in touch with us as simple and efficient as possible for both parties, we ask you to primarily use our contact form for your questions. Please describe the matter as clearly as possible. You can also add attachments. After sending your inquiry, the attorney responsible will contact you either by telephone or by e-mail within 24 hours and, where necessary, pose further questions or submit a proposal for consultation.  

Of course, you can also call us directly to make an appointment for a personal consultation or telephone consultation (find contact details here). All potential clients will be informed in advance of any costs that may be incurred during the initial consultation

Contact form - international-probate-lawyer

Formular
captcha
Attach documents to your message to us (max 5 MB).