I'm a nonresident with a US rental — is 30% really withheld from the gross rent?
Yes. By default, U.S.-source rental income paid to a nonresident alien is "fixed or determinable annual or periodical" (FDAP) income, and the payer — your tenant or property manager — must withhold 30% of the gross rent under IRC Section 1441, with no deductions allowed. But there is a well-established way out: an election under IRC Section 871(d) treats the rental income as effectively connected with a U.S. trade or business, so you file Form 1040-NR and pay graduated tax on net income instead. For most landlords, the election cuts the bill dramatically.
How the default 30% withholding works
The IRS withholding-agent guidance puts it plainly: the statutory withholding rate is generally 30%, applied to the gross amount of the payment. Rent is one of the FDAP income items named in the statute. A quick example shows why the default hurts:
| Gross-rent method (default) | |
|---|---|
| Annual rent | $24,000 |
| Deductible expenses (taxes, insurance, repairs, depreciation) | $0 allowed |
| Taxable amount | $24,000 |
| Withholding | $7,200 (30% of gross) |
Your tenant or manager sends that $7,200 to the IRS. You can still file Form 1040-NR to claim a refund — but only by making the net election, and only if you file on time.
The §871(d) net election: what changes
Electing under Section 871(d) lets you report the rental activity the way a U.S. landlord does — gross rent minus mortgage interest, property tax, insurance, management fees, repairs, and depreciation — and pay tax at graduated rates on the net. The election stays in effect for all later years until revoked.
| Step | What to do |
|---|---|
| 1. Make the election | File Form 1040-NR for the first year, with the election statement described in the form instructions; report the rental on Schedule E |
| 2. Stop the withholding | Give your tenant or property manager a valid Form W-8ECI so the 30% withholding stops |
| 3. Keep filing | File Form 1040-NR every year the election is in effect — even in loss years — and keep your W-8ECI current with the withholding agent |
| 4. Get an ITIN if needed | File Form W-7 (usually with your first 1040-NR) if you have no Social Security number |
With the same $24,000 rent, if expenses and depreciation leave $4,000 of net income, the federal tax at graduated rates comes to roughly a few hundred dollars instead of $7,200 withheld.
Deadlines that matter
- Form 1040-NR is generally due April 15 if you had U.S. wages subject to withholding, and June 15 if you did not — which covers most rental-only owners.
- The 16-month rule: under Treasury Regulation 1.874-1, a nonresident can claim deductions only if the return is filed within 16 months of its due date. File later and the IRS may tax the gross rent, plus penalties and interest.
- Revoking the election generally requires IRS consent (and a timely Form 1040-X for the election year), so treat the election as a long-term decision.
Frequently asked questions
My state also taxes rental income — does the election help there?
The election is federal only. Most states with an income tax require their own nonresident return on the rental income; states like Florida and Texas have no personal income tax.
Can a tax treaty reduce the 30%?
Treaty rates generally cover dividends, interest, and royalties — real-estate rental income is typically carved out and taxable where the property sits. The net election is usually the better route.
What if my manager already withheld 30%?
The withholding can be credited or refunded on your timely filed Form 1040-NR once the election is made. Getting the W-8ECI in place early avoids the cash-flow hit.
Sources
- Entry source: https://www.irs.gov/individuals/international-taxpayers/taxation-of-nonresident-aliens
- IRS, "Nonresident aliens – Real property located in the U.S.": https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-real-property-located-in-the-us
- IRS, "U.S. withholding agent frequently asked questions": https://www.irs.gov/businesses/international-businesses/us-withholding-agent-frequently-asked-questions