Real Estate Tax Review

Real Estate and Investments in Partnerships in the US

In real estate investments and partnerships, the investor must be aware of the various tax effects on properties in the United States, as well as the consequences of Israeli taxation.

Although the tax treaty regulates the issue of tax duplication and the production of sources of income, it is also important to know the federal law and state law that affect the status of taxation in the United States and Israel.

Below you will find the information needed for the reporting process from the first investment and the tax review of the TAX4US office.

US investment and taxation stages

Important Information!
* The American tax report will be submitted annually in the following year for each year in which he held an income-producing property. For partnerships, the report will be submitted by March 15 and for individuals / companies by June 15.
** The Israeli tax report, which also contains the investments made abroad, will be submitted by June 30 (without presenting an Israeli accountant)

Types of Associations in the United States

Investing in real estate requires a type of maintenance in the property and is usually done in the following ways:

  1. Direct maintenance on the property, will usually be done when there is a high fee for opening an LLC in the country of origin.

  2.   LLC - An entity that is created under state law, which combines shareholder protection as well as mirroring shareholders for tax purposes. That is, the LLC's revenue is transferred directly to its members and is not taxed according to corporate tax rates.
    The LLC has natural defaults depending on the number of its members: an individual will be considered a disregarded entity while the investment of many will be considered a partnership. If there is an advantage, the LLC can be transformed into a limited company or S-CORP (if the shareholders are American).

  3.   Foreign company - neutralizes the exposure to estate tax, which applies to an individual in case the fair value of the assets exceeds $ 60,000.

Production of an identification number for ITIN tax purposes

This number is used by the investor when submitting the reports to the US and is produced by the IRS after filing an application in Form W7 with a federal tax return and appropriate references. The identification number is the equivalent of SSN for individuals who are not entitled to it and serves as a means of identification for the taxpayer.

Federal law states that it is mandatory to identify the individual who requests the number, for which there are three options:

  1. TAX4US is an IRS certified agency for the authentication and identification of original documents. We are authorized to use a quality passport passport, validly, signed in the box indicated above the image as a means of identification.

  2. Identification with the US Embassy by scheduling an appointment at the embassy - $ 50 Click here .

  3. Sending a dual birth certificate  Tab (To order click here ) and driver's license (To order click here ). After receiving the documents by mail, they must be forwarded to our office.

After submitting the application along with the tax return, you must wait about three months to receive the identification number in the mail. The process is one-time and the identification number is valid for three years, if not used. time.

Income taxation from renting properties in the US

Unlike the State of Israel where, in most cases, the tax on passive income is at fixed rates for each type of income and sometimes also exempt from filing reports or paying tax, in the US the tax on this income will apply according to progressive income tax rates and every year.

The U.S. tax return for a non-U.S. citizen, for a partnership or for a foreign company will contain all of the revenue generated in U.S. territory in the tax year, when there is an entitlement to offset direct and indirect expenses incurred in operating the property. Expenditure records must be kept in case of a random check by the U.S. Internal Revenue Service (IRS).

The US grants an exemption on net profit of up to about $ 4,050 depending on the number of people in the report (in the case of one Israeli investor). The tax brackets start at a rate of 10% and reach up to 39.6% of net profit. Most countries in the United States operate such and such tax systems and in individual percentages derived from net income. Only six states in the United States do not impose state-level taxes.

When selling the property, capital gains tax rates apply depending on the period of ownership. With a holding of more than one year, there are better tax rates of up to 20%. However, the deductible deduction will be subject to a 25% tax rate. This transaction is reported to the IRS and deducted at source 15% (10% in some cases) by the title company or by the buyer. The investor may be required to file an annual tax return in the following year to claim Tax Return.