Thomas Carden, Managing Director of AITAX, and Robert Chadwick, CEO of America Mortgages, discussed how strategic tax planning can enhance rental income, reduce liabilities, and boost cash flow. This webinar covered U.S. tax strategies for overseas investors, practical tips for reducing tax liabilities, and ways to improve cash flow. For those who couldn’t attend, the recording is now accessible here.
Thomas Carden (TC) and Robert Chadwick (RC) answered a variety of questions, providing clear and concise responses to help investors make informed decisions, with remarks edited for clarity and brevity.
1. Do you charge an hourly rate for tax consultation sessions?
- TC: Yes, we offer either a half-hour or a full-hour session. Generally, the rate is $450 for a full hour. However, if you email us at [email protected], you can get a free half-hour consultation due to our relationship with America Mortgages, which is a $225 value.
2. Is this assuming the property is owned by an individual compared to through an LLC?
- RC: Very good question. We recently had a webinar on setting up LLCs, which can be done through our website. Generally, purchasing property through an LLC can provide tax advantages and mitigate liabilities. However, the specifics depend on individual circumstances and goals.
3. Are there any specific states that offer more favorable tax conditions for non-U.S. citizen investors?
- TC: Yes. Some states like Washington, Texas, and Florida have no state tax, which can be advantageous for rental property investments. States have their own tax codes, so it’s important to consider both state and federal tax implications. For example, Texas is landlord-friendly and has no state income tax.
4. How do I manage taxes if I own multiple U.S. properties?
- TC: You need to segregate the expenses for each property in your accounting system. Each property should be treated as its own business entity for tax purposes, with individual expenses tracked separately. This helps in accurate reporting on Schedule E for each property during tax filings.
5. As a foreigner using an LLC, don’t we first have to file a tax return for the U.S. LLC, then pay U.S. tax if any, and then deal with our native country’s tax system (Australia) under the double taxation treaty? Correct?
- TC: Yes, you need to file a U.S. tax return for the LLC in the calendar year after receiving rent. Tax treaties vary, but generally, you minimize U.S. taxable income through depreciation and financing. Proper planning should help you avoid paying U.S. taxes, as the rental income can be structured to show a negative net income.
6. Are New York City, Manhattan condos the worst kind of investments in terms of value and costs? Hence looking elsewhere in the U.S. Which U.S. bank should I open with on a B1/B2 visa? Any suggestions? I plan to visit Arizona after New York in August.
- TC: Unless you’re looking to buy a trophy asset, Manhattan is not a good place due to low rental yields and high taxes. There’s also a mortgage recording tax (1.5%) and a mansion tax (1%) in Manhattan, essentially a 2.5% stamp duty on overpriced properties. As for banks, specific suggestions weren’t given, but you should consider opening an account with a bank that operates nationally and has experience dealing with foreign investors.
7. How many months of salary statements or payslips do you need on average?
- TC: If you are a U.S. expat qualifying off your U.S. taxes, two months of salary statements are needed. For foreign nationals or U.S. citizens qualifying on rental income, personal income statements are not required; you only need to qualify based on the rental income of the property.
8. Should I preserve my Hong Kong-based income, such as salary, rather than necessarily equities or cash assets?
- A diversified portfolio across multiple nations is recommended to mitigate risks. Investing in U.S. real estate can offer tax advantages and potentially aid in immigration status. The rental payments should ideally cover debt service and other expenses, with the property value appreciating annually, providing a solid investment yield.
9. I’m a freelance entrepreneur without regular income. Can I qualify for a mortgage?
- RC: Yes, qualifying off the rental income of the property is common. Personal cash flow is not a concern; what matters is the cash flow of the property itself. So, being self-employed or having irregular income does not prevent you from qualifying for a mortgage.
10. Are there any restrictions on the types of properties eligible for investment loans?
- TC: Generally, no significant restrictions exist, though some states may have specific rules (e.g., Texas may restrict farmland purchases for certain passport holders). America Mortgages can handle various property types, from residential to commercial, with size not being an issue.
11. Can America Mortgages help connect foreign investors with local real estate agents?
- RC: Yes, America Mortgages partners with vetted realtors and can connect pre-approved clients with agents who understand working with foreign investors. This helps in coordinating time differences and ensuring smooth transactions.
12. In the AM Investor+ program, do you also consider rental income from the property, the same as the AM Investor option?
- RC: Yes, rental income from the property can be considered, especially if the provided income is potentially short, ensuring you can cover the debt.
13. In the USA, do we pay you a fee? In our country, we don’t; in fact, we get paid by the bank for bringing business to them!
- RC: In the U.S., mortgage brokers are compensated by points, usually 2% of the loan amount, not the property value. This ensures that brokers work for you, the client, to find the best loan programs available, unlike bank-specific loan officers.
14. Can you handle both U.S. and Canada cross-border taxation?
- TC: Yes, cross-border taxation is a specialty, handling clients from various countries including Canada. The firm has experience dealing with U.S. tax issues worldwide and offers a free half-hour consultation for those referred by American Mortgages.
15. Is today’s tax talk about LLCs or individuals?
- TC: Yes, the tax code in the U.S. is friendly to both businesses (LLCs) and individuals owning rental properties. The same tax benefits apply to both entities. Specific tax strategies can be tailored based on individual goals and circumstances.
16. No, I think it was a misunderstanding. Australia will treat this as an investment in a foreign company. Then either keep the money in that U.S. LLC or bring back the income as a dividend. So, the question is, U.S. LLC tax return first? And then the native tax return?
- TC: The U.S. tax return must be done first, and then it flows to Australia. Depending on the tax treaty, there may be specific tax rates for rental real estate. The firm has an expert in U.S.-Australia tax matters for detailed assistance.
17. What do you make of Miami as a place for investment? Fort Lauderdale, Orlando, West Palm Beach, Miami City Centre.
- TC: Miami and Florida, in general, are considered great investment locations. Miami is vibrant with good value properties. However, current insurance costs due to storm risks are high, especially for properties close to the water. Inland areas like northern South Carolina or Texas may have lower insurance costs and are also booming investment spots.
18. What do you mean you are a mortgage bank yourself? Are you a lender?
- RC: The firm is both a direct lender and a mortgage broker. They have their own loan programs and can underwrite and fund transactions. They also act as brokers for more complex transactions beyond their direct funding capabilities, covering residential to commercial transactions.
