Capital gains or income taxes levied on foreign nationals

[DAfshar]

Are foreign nationals not residing in the USA ( in this case, a Japanese national ) subject to capital gains or income taxes sourced in the USA when investing in the USA?

I've posed this question and have gotten both yes and no answers. I'm curious if anyone has any experience with this issue. I'm an American residing in Japan and know the tax consequences if I invest anywhere in the world. However, I have heard that the USA does not tax foreign investors in an effort to promote FDI.

True or false?


D

[synthia]

I thought this belonged in the American section.

I looked at the IRS website, and in a discussion about student non-resident aliens, it said that non-resident aliens were not subject to taxes on capital gains on US investments because they have not changed their tax home.

That means the income would be subject to Japanese taxes, but for some reason I don't think capital gains are taxable in Japan? Or was that dividends and interest?

Japan has enough American residents that there should be an IRS office there. You could ask.

[DAfshar]

Thanks for the response. Actually, I sent the IRS an email but I don't anticipate an answer for some time. I'm curious which is more tax advantageous, an American expat living in Japan subject to double taxation or a Japanese national investing in the USA. Finding the answer to this is my mission for the coming weeks.

Thanks again for the response.

[biswell]

I am a UK resident looking to buy in Florida

I am concerned that I will be taxed on rental income and also capital gains when I sell around 5 years later.

Can anyone please advise me how taxation can be minimised ?

regards

biswell

[Bevdeforges]

If you're interested, take a look at Publication 519 on the IRS website. Basically, all US source income is taxable, however there are certain thresholds and it may depend on whether or not the foreigner is "conducting a business" in the US or not. (In other words, the extent of their investment.) There are also tax withholding requirements for non-resident aliens when it comes to certain types of investment income.
Cheers,
Bev

[biswell]

Originally Posted by Bevdeforges

If you're interested, take a look at Publication 519 on the IRS website. Basically, all US source income is taxable, however there are certain thresholds and it may depend on whether or not the foreigner is "conducting a business" in the US or not. (In other words, the extent of their investment.) There are also tax withholding requirements for non-resident aliens when it comes to certain types of investment income.
Cheers,
Bev

Thanks

I read in a previous post that as a foreign non-resident that the taxes appertaining to your country of origin apply

Is this so ?

In particular capital gains tax

[Bevdeforges]

Originally Posted by biswell

I am a UK resident looking to buy in Florida

I am concerned that I will be taxed on rental income and also capital gains when I sell around 5 years later.

Can anyone please advise me how taxation can be minimised ?

Hi Biswell, and welcome to the forum.

Yes, you will be taxed on rental income and capital gains when you sell. However, be sure and talk to competent tax advisors (I highly recommend finding an "enrolled agent" - much cheaper than either an accountant or a tax attorney and you should be able to find an EA in the UK).

You're entitled to deduct all current operating expenses from your rental income - including depreciation (and generally you can use accelerated depreciation methods).

For capital gains, your accelerated depreciation will complicate the situation a bit, but you also get some allowances for any improvements you put into the property - which can improve your sales price.
Cheers,
Bev

[apot]

Hi Bev, this sounds an important info, would you please explain what is "enrolled agent" and how to find one? Thanks.

[Bevdeforges]

An enrolled agent is someone certified by the IRS to prepare tax returns and represent clients before the IRS (if problems develop). I'm away from home at the moment, but if you google "enrolled agent" you should be able to find the professional association site which has a list of enrolled agents by location. (And yes, there are enrolled agents in Europe - and probably in other areas around the world.)
Cheers,
Bev

[synthia]

DAfshar - Why are you subject to double taxation? Will Japan tax your capital gains in the US? I thought that if you were a resident of another country you not only got the $80,000 exemption for earned income, but could then offset any taxes you did owe with the corresponding taxes paid to the country of residence.