Taxed on the rent,
or taxed on the profit
The default treatment for a non-resident landlord applies withholding to gross rent. The alternative — an election to be taxed on the net after expenses — usually produces a far better outcome, and requires filing.
Before you read on
- General information as of August 2026, not tax advice. Confirm your own position with a CPA experienced in non-resident ownership before the first rent is collected.
- Rules, rates and procedures are set by federal statute and IRS practice and can change.
- An ITIN is the prerequisite for almost everything on this page. Apply early.
Point 1Two regimes, and why the default is the worse one
Withholding on gross rent ignores every cost of owning the property.
| Treatment | Taxed on | Deductions allowed | Requires |
|---|---|---|---|
| Default withholding | Gross rent | None | Nothing — it simply happens |
| Effectively connected election | Net after expenses | Depreciation, interest, tax, insurance, management, repairs | Election and a US return |
A simplified framework. The mechanics and the election itself should be handled by a CPA experienced with non-resident owners.
The arithmetic is straightforward. A property collecting $24,000 a year with $14,000 of legitimate operating costs and depreciation has a very different taxable base under the two regimes. Withholding applied to the full $24,000 disregards the $14,000 entirely.
Point 2What the net regime lets you deduct
Residential rental property is depreciated over 27.5 years. It is a non-cash deduction, and it is recaptured on sale — a deferral rather than a gift.
Interest on debt secured against the property, which for a leveraged purchase is frequently the second largest line.
The county bill, which in high-rate states consumes a meaningful share of gross rent on its own.
Including the higher premiums that coastal and older properties carry.
The 8-10% management fee, leasing fees on new tenancies, and associated costs.
Repairs are deducted; improvements are capitalised and depreciated. The distinction matters and your accountant will draw it.
Point 3The ITIN is the gate
Almost nothing on this page works without one, and obtaining it takes time.
An Individual Taxpayer Identification Number is required to file a US return, to claim the deductions above, and later to reclaim excess FIRPTA withholding when the property is sold. Applying early — alongside the property search rather than after closing — is one of the cheapest good decisions in the whole process.
Owners who wait typically discover the gap at the first tax deadline, or worse, at a sale where 15% of the price is already with the IRS and the claim to recover part of it cannot yet be filed. Our [ITIN article](/blog/itin-number-application) covers the application.
Point 4The records that pay you back years later
Basis is what you paid plus capital improvements, and it determines the taxable gain when you sell. Every documented improvement reduces that gain: kitchen and bathroom renovations, system replacements, structural work. All of it needs invoices rather than recollection.
Keep the purchase closing statement, contractor invoices, permits and payment records for as long as you own the property, together with the depreciation schedule your accountant maintains. Owners who kept a folder from day one recover materially more at sale than those reconstructing a decade from bank statements — see our guide to selling as a foreign owner.
By default, withholding applies to gross rent. An election to treat the income as effectively connected with a US trade or business allows tax on the net after expenses instead.
Filing and being taxed on the net is generally far better, because depreciation, interest, tax, insurance and management are deductible. Confirm your position with a CPA.
Yes, in practice. It is required to file a US return, to claim deductions and later to reclaim excess FIRPTA withholding on sale.
Depreciation claimed during ownership is recaptured when you sell, increasing the taxable gain. The deduction is a deferral rather than a permanent saving.
Frequently yes, in relation to withholding and reporting. Establish with your CPA and your manager who is responsible for what before the first rent is collected.
Several states tax rental income sourced there, requiring a state return in addition to the federal one. Multi-state ownership multiplies filings.
RELATED GUIDES
Let’s talk first
We coordinate with clients' CPAs from the first rent onward. Talk to us before the property is let, not at the filing deadline.
Important notice
The figures on this page are general information as of August 2026 and do not represent an offer, a quote, or a guarantee of any transaction terms. Reinvent NY does not provide legal, tax, or investment advice. Confirm anything material with an attorney and a CPA before you act on it. Nothing here is a solicitation to invest, and no return is promised. Real estate brokerage services are provided through R New York.