US tax rules on property income and capital gains

Foreign investors might wonder whether an investment in the United States is the right solution for their investment. They might step back of a foreign investment because it seems too scary or time-consuming to understand how the country works. In this article, we explain to our foreign investors how U.S tax rules on property income and capital gains* work.

As we explained in our article Why invest in real estate in the U.S.?, the cost of acquiring a real estate property in the U.S. is more competitive than in France. On average, purchase fees amount to around 2% of the purchase price in the U.S., and 8% of the purchase price in France. Closing fees include settlement charges (to update the titles), attorney's fees, broker fees, taxes and miscellaneous administrative costs.

Overall, US tax rules on property income and capital gains are more advantageous than French tax rules. Also, US tax rules can offer many tax breaks. Furthermore, a real estate owner can deduct the expenses incurred in the management of the property (such as maintenance work, insurance, manager's or accountant's fees, hotel expenses and airline tickets for foreign owner, etc) from gross rents when s/he files his/her tax returns.

In the United States, there are different levels of taxation at the federal level, at the federal level and possibly at the level of local communities of residence. A foreign investor is required to pay taxes on capital gains realized on the sale of a property or capital gain to the federal government. In 2018 and 2019 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year:

Assets held less than a year are taxed as ordinary income, starting at 10%, up to 37% in 2019 (see IRS tax brackets for 2019).

In comparison, in France, the capital gain on real estate is taxed at 19% on income tax. An additional tax applies in the event of a taxable capital gain exceeding €50,000. The rate ranges from 2% to 6% depending on the amount of the capital gain realized.

            Interested with real estate investment? Contact the BaltimoRealEstate team for more information!

* Capital gains are the profits from the sale of an asset such as a real property and generally are considered taxable income.

Sources :

• https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2019
• https://www.irs.gov/taxtopics/tc409
• https://www.service-public.fr/particuliers/vosdroits/F10864
• https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/