USA Withholding sales tax?

I have rental property in the USA and live in the UK. On my UK tax return can I claim back the 30% sales tax that is with held?
My management company withhold 30% tax from my rental income which is stated as sales tax on my year end documents.

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6 Responses to “USA Withholding sales tax?”

  1. magicbird says:

    5W, I don’t understand. Sales taxes only apply when something is bought or sold. For example, in PA there is a tax on a home when it is sold. The buyers pay 2% tax on his purchase of the house and the seller pays 2% tax on the sale of the house for a total of 4%. But it’s a One Time tax for both parties–tax on a purchase and sale of property– they don’t have to keep on paying it every year, any more than you would have to pay sales tax every year on a camera you purchased 5 years ago.

    Are you sure that you don’t mean that your management company is charging you 30% of your rental income for their services? Because they aren’t ‘selling’ any material object, nor are you continuously ‘buying’ your US home. I’m not sure I’d trust this management company if they claim they are withholding ‘30% sales tax from your rental income.’ It’s NOT the kind of bookkeeping error that you would expect a management company to make. Better look into it!

    ….and by the way, 30% of your rent sounds awfully high to me for a management company to be charging you! Get on the phone pronto. You might be getting ripped off.

    ADDITION: It’s possible that I’m misunderstanding you. It is true that about 1/3 of your rental income (note that I said ‘income,’ not ‘sales’) will go the the US IRS as tax on your earnings, and this is usually all sorted out for each tax year. But how on earth a mgmt company could state to you that it is sales tax is beyond me. I think the IRS will be confused about that too.

    If you’re asking if you can avoid paying US taxes on US property–that’s not likely, because your income was earned in the US. Regarding local property taxes? Those have to be paid to your local government to maintain the schools and infrastructure of the municipality.

  2. A Hunch says:

    There is no sales tax on property. Do you mean property tax?

  3. CarVolunteer says:

    That would be withheld INCOME tax. If it is called sales tax on your documents the documents are wrong.

  4. tro says:

    when you file your US tax return it is very possible that you will not owe the 30% that was withheld

  5. NA says:

    There are special rules that apply to foreign owners of rental property located in the USA. Be DEFAULT, the management company was required to withhold 30% of each rental payment and send it to the IRS. At the end of the year, you will get a 1042-S documenting the income and the amount withheld.

    If you do NOT file, the tax rate is 30% and since it was withheld already, you would be fine with the IRS. You can’t deduct expenses, but you don’t have to account for depreciation either when you sell. Much easier than the alternative.

    if you CHOOSE to file, you can elect to be taxed on the property the same way a US person is. That means you deduct all expenses, including depreciation, and probably won’t owe a dime. Then the 30% is refunded to you. You would have to find someone who is competent to do the return and that costs money. When you sell, you have to pay back the depreciation at tax rates of up to 25% and the remaining gain at 20%. That tax return must also be paid for. (When the house is sold, the people running the transaction will automatically withhold 10% towards these taxes.) This first tax return will require you to get an ITIN and will take about 5-6 months to process. Once you have the ITIN, you can ask the Management company to stop withholding the 30%.

    If you co-own the property with a spouse (or anyone else), all tax returns will have be filed twice, with half of each income/expenses on each return.

    Note, while most of the posters have correctly indicated this is INCOME tax and not sales tax, none have mentioned that there are two different ways to be taxed. Be sure to read the link I’ve provided.

    PS, it appears the management company called it sales tax because they had never had a foreign landlord before.

  6. StephenWeinstein says:

    Sales tax in the U.S. is not 30%. It varies slightly from place to place, but is usually between 5% and 10%.

    If the management company withheld 30%, then either (a) it was for some other tax, which was not sales tax, or (b) they lied to you and they are keeping the money for themselves.

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