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Taxes on Rental

Docklander

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When you rent out a timeshare week do you have to charge a tax on the rental? Please forgive the question if the answer is obvious but I going to play my 'I'm not in the US' card on this one so am not entirely up to speed with your laws. Over here in the UK you would have to declare any income but not charge any government taxes to the renter but how does it work for you guys? Thanks for any help!
 

Conan

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All you can do is charge the tenant whatever rent the market will bear. We don't have a VAT tax in the U.S., so there's no basis for you to add a tax component on top of the negotiated rental amount.

Strictly speaking, your tenant (because you are a non-resident alien and the rent is considered US-source) is supposed to withhold 30% of the rent and pay that to the Internal Revenue Service:

"Under Federal law, foreign taxpayers are taxed at a flat 30% on their U.S.-source "fixed or determinable, annual or periodic income" ("FDAP"). IRC Code Section 861(a)(1). This type of income usually consists of interest, dividends, rents, royalties and personal services. IRC Sec. 871(a)(1). It is usually income that is passive in nature and has a high gross-to-net ratio. In other words, FDAP income generally does not have business-type deductions associated with its production. The payment of this tax is enforced through a withholding procedure in which the person making the payment to the foreign person is obligated to withhold the tax and pay it directly to the U.S. government. IRC Code Section 1441. A foreign person is not entitled to apply for a refund on FDAP income."

http://www.google.com/search?hl=en&q=1441+871+fdap+rent

The logic for this system is that you are beyond the reach of the US tax enforcers, so it's unlikely you will pay the 30% tax that the US tax law imposes.

Informally speaking, I'd say that if your tenant pays you 100% then nobody will pay the tax.
 

mtwingcpa

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Although there is no federal sales tax in the US, some of the states do in fact impose sales tax on "transient rentals" (typically those lasting less than 30 days) and such tax is normally charged on top of the rental rate. Additionally, some localities may have their own "hotel" or "tourism" taxes that get added on top of that. However, in many cases there MIGHT be an exception for "casual or isolated" transactions that would exempt an owner from collecting such taxes on occasional rentals that are not otherwise part of a regular business operation. I am not aware any general exemptions for foreign owners.

So, you have to ask with respect to the specific locality in question. :)
 
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