I received a question at USTaxAid from a foreign national who was investing in real estate in the US. The tax laws are slightly different in the case of someone who is investing from outside the US. I receive this question from an Australian who had purchased a property. She didn’t have a Social Security number, and so instead needed an ITIN (individual tax identification number). Now what?
Q: I want to open a US bank account from Australia (for rental income) and they have asked me for an ITIN to be able to open over the phone/remotely. When I look at the form for an ITIN, it seems a need a letter from the bank saying I need one… but of course they wont give me one. Can you help? with the ITIN form, or the bank account?
A: In your situation, there are two ways to get your ITIN.
#1: You can file a US tax return which shows income or loss. Since you won’t have a Social Security number or an ITIN, the IRS will need to get you one in order to accept your tax return.
The advantage is that it’s the cheapest and easiest way to get an ITIN. The disadvantage is that you’ll need to wait until you have income or loss to report. The earliest you could file would be February 2015, assuming you had income or loss for 2014. You will need to include some paperwork along with the tax return such as your passport.
#2: You can set up an LLC for your real estate property. This is one of the exceptions on the Form W-7, which will get you an immediate ITIN.
The advantage is that you have an LLC for your property, which will provide asset protection as well. If the LLC is owned just by you, it is called a single member LLC and so you don’t need to file an additional return. The disadvantage is that there is a cost to set up the LLC (approximately $600) and there will be a state annual fee to keep it running. That can run anywhere from $50 to $800, depending on the state in which you have the real estate.
The final thing to consider is whether having an ITIN is the only roadblock that stands in the way of getting your bank account. Most US banks now require that any foreign national appear in person in order to get a bank account opened. That means that you’ll need to come to the US.
You may instead want to keep the money with your property manager and then have them periodically wire you the income from the account.
We can help with all of the steps to get your ITIN and file your tax returns. Please Contact Us.