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What You Need to Know About Renting Out and Selling Real Estate in New York

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4th Aug 2021




In recent years, there has been an increase in the number of foreign buyers doing real estate transactions in the United States. At the same time, many of them focus on real estate in New York and, in particular, in Manhattan.

For foreigners, the process of buying real estate in New York can be quite difficult. Therefore, it is important to know the main points that foreign buyers should consider when making New York real estate transactions, from initial planning to closing the deal, then renting or selling.

Just like when buying, foreign investors should contact a local agent to post ads and find suitable tenants when renting out property in New York.

A good agent will post rental ads on popular internet platforms like StreetEasy. In addition, the agent ensures that the property is displayed to potential tenants and advertises its availability for rent.

In other words, the help of a good real estate agent can mean a quick search for tenants and, on the contrary, his absence threatens to vacate your property for many months in a row.

The same can be said with the help of a New York City real estate attorney. Foreign buyers should contact a lawyer who will prepare the lease and perform due diligence on potential tenants. These steps will help the foreign homeowner to minimize legal risks, including the risk of non-payment by tenants.

1. Taxation of rental income

Determining the appropriate tax and ownership structure for a property in New York is one of the most important first steps for any foreign investor. However, it is this step that investors often do not pay enough attention to.

The use of an inappropriate holding structure in combination with taxes at the municipal and federal levels can result in rental income tax liabilities of up to 65% (including income repatriation tax). 

2. Taxation when selling real estate

The type of holding structure also affects the amount of taxes levied on the sale of a property. If an inappropriate structure is used, taxes on sales income, including taxes on repatriation of profits to the owner's country of residence, can be as high as 65%.

In addition, foreign property owners in New York should consider the requirements of the Foreign Real Estate Investment Tax Act (FIRPTA) and withholding tax requirements.

According to FIRPTA law, any person who purchases real estate in the United States from a foreign seller is required to withhold 10% (at a purchase price of $ 300,000 to $ 1 million) or 15% (if the purchase price exceeds $ 1 million) of the total purchase price, and transfer the specified the amount at the disposal of the IRS.

Likewise, the New York City government requires a withholding amount equal to 8.82% of the expected realized capital gains from the sale. Fulfilling these withholding tax requirements may result in the seller not having enough cash to cover the costs of closing the sale.

However, with proper planning, the source of income tax under FIRPTA can be reduced or eliminated altogether. Even if you can’t qualify as a resident alien, you might still be eligible for some FIRPTA exemptions

For more information on this, see FIRPTA Foreign Investors' FIRPTA Tax Reduction or Elimination Ways to Sell Real Estate in the United States.

The Bottom Line 

By understanding all the stages of the process of buying and selling real estate in New York, as well as with appropriate planning, foreign buyers will be able to easily implement real estate transactions in New York and minimize their tax liabilities in the United States.