If you are contemplating acquiring a property in the United States with the vision of generating income through vacation rentals, especially in a dynamic market like Orlando, Florida, it is very likely that you have come across the term ITIN (Individual Taxpayer Identification Number). For foreign investors, this tax identification number issued by the US Internal Revenue Service (IRS) is an essential requirement to operate within the legal framework of the country and access important tax benefits.
In this comprehensive article, we break down clearly and concisely what the ITIN is exactly, what its specific purpose is for foreign investors in real estate, and most importantly, how you can obtain it efficiently even without residing in the United States, thus facilitating your entry into the US real estate market.
What is the ITIN (Individual Taxpayer Identification Number)?
The ITIN (Individual Taxpayer Identification Number) is a nine-digit tax identification number issued by the IRS (Internal Revenue Service), the US government agency responsible for tax collection. This number is intended for people who need to comply with their tax obligations in the US but are not eligible to obtain a Social Security Number (SSN).
It is crucial to understand that the ITIN is used solely for tax reporting purposes and does not authorize the holder to work in the United States or grant access to Social Security benefits or other federal programs. For foreign investors who generate income within the country, such as those who rent a vacation home, the ITIN becomes an indispensable tool to interact formally with the US tax system.
What is the ITIN for if You Are a Foreign Owner in the US?
As a foreign owner of a vacation home in the United States, obtaining an ITIN is essential for a variety of crucial purposes:
Declare your Rental Income to the IRS: The ITIN allows you to comply with your obligation to declare the income generated by renting your property to the US Internal Revenue Service. This declaration is essential to operate legally and avoid possible penalties for non-compliance.
Pay Taxes Legally and Avoid Penalties: By having an ITIN, you can pay the corresponding federal income taxes on your rental income formally. This protects you from potential fines, interest, and other penalties for tax evasion.
File Deductions and Avoid Excessive Withholdings: As a foreign owner, you have the right to deduct legitimate expenses associated with the administration and maintenance of your rental property (such as management fees, repairs, insurance, mortgage interest, property taxes). Without an ITIN, rental platforms are usually required to withhold up to 30% of your gross income to send it to the IRS, which could be significantly higher than your actual tax liability after deductions. The ITIN allows you to avoid these excessive withholdings by declaring your net income.
Open a Bank Account in the United States (in some cases): While it is not a guarantee, some financial institutions in the US may require an ITIN to open a bank account in the name of a foreigner who generates income in the country. Having a local bank account facilitates the management of your property’s income and expenses.
Sign Contracts Related to your Property: In various transactions related to your property, such as management contracts or agreements with service providers, you may be asked for a tax identification number, with the ITIN being the option for foreigners not eligible for an SSN.
Access Legitimate Tax Benefits: The ITIN allows you to take advantage of the tax benefits you are entitled to as a foreign investor, such as the possibility of deducting operating expenses and property depreciation, which can significantly reduce your tax burden.
In summary, the ITIN is the key that allows you to operate your real estate investment in the US formally, legally, profitably, and transparently.
Who Needs to Obtain an ITIN as a Foreign Investor?
Any foreign person who is in any of the following situations and is not eligible to obtain a Social Security Number (SSN) will generally need an ITIN:
You have rental income from a property located in the United States. You wish to form a legal structure such as an LLC (Limited Liability Company) in the US to operate your business or real estate investment. You need to comply with other US federal tax obligations. You are not a US citizen or legal permanent resident of the country.
Even if you do not reside physically in the United States, but own a vacation home in Orlando that is rented through platforms such as Airbnb or Booking.com, obtaining an ITIN is a mandatory requirement to declare your income and avoid significant withholdings.
How to Obtain ITIN as a Foreign Investor? Step-by-Step Guide
The process to obtain an ITIN may seem complex initially, but with the proper documentation and, preferably, the advice of a professional with experience in foreign investors, it can be done efficiently even from your country of residence. Here are the key steps:
- Complete Form W-7: Form W-7, Application for IRS Individual Taxpayer Identification Number, is the official form you must complete to apply for an ITIN. You can download this form directly from the IRS website. Make sure to fill it out accurately and completely.
- Gather the Required Supporting Documentation: You must attach to Form W-7 original documents or certified copies of foreign documents that prove your identity and your foreign status. The main document that is generally used is your valid passport. If you do not have a passport, you can submit other documents such as your national identity card, birth certificate (with certified translation), foreign driver’s license, among others, as long as they meet the IRS requirements (they must show your photograph, date of birth, country of residence, and expiration date).
- Submit a US Tax Return or a Justification of Need: Along with Form W-7 and the supporting documentation, you must submit a US federal tax return (Form 1040NR) or a justification that demonstrates why you need the ITIN. In your case as a foreign investor with a vacation home in Orlando, the justification will be the need to declare the income generated by renting your property. This may include a property management contract, an income summary from rental platforms, or a letter from a real estate agent or accountant certifying your situation.
- Send the Application to the IRS by Mail or Through an Authorized Acceptance Agent (CAA): You have two main options for submitting your IRS ITIN application:
Mailing to the IRS: You can mail Form W-7, the original documentation (which will be returned to you by the IRS) or certified copies, along with your tax return or justification of need, to the specific IRS address for ITIN applications. However, sending original documents by mail carries a risk, so many investors prefer the following option.
Through an Authorized Acceptance Agent (CAA): A CAA (Certifying Acceptance Agent) is a person or entity that has been authorized by the IRS to help taxpayers obtain ITINs. CAAs can review your original documentation and send it directly to the IRS without you having to part with it. Working with an accountant with experience in foreign investors who is a CAA is the safest and most efficient option.
