Purchasing an investment property in the United States is a significant step for many Israeli investors. In recent years, with the surge in housing prices in Israel, investing in foreign properties has become particularly attractive for individuals with modest capital who wish to leverage it and take their first steps into the world of investments and real estate. Alongside this popular trend, it is important to be aware of certain aspects involved in such an investment, as they can significantly impact the return and profitability of your investment.
Primary Tax Right to the USA
The United States adopts a “personal taxation” approach. Israeli investors who purchase property in the United States will be subject to American tax on their income from the property, including both rental income and capital gains from its sale.
Dual Reporting Obligation
Israeli investors who hold properties in the United States are required to report their income from the property to both the Israeli tax authorities and the American tax authorities. This obligation exists even if they are not residents of the United States and do not pay direct income tax in the United States. Failure to report this income can lead to significant fines and even criminal proceedings. The reporting obligation requires substantial support from professionals familiar with the American tax field.
Types of Tax on Income
Income from renting a property in the United States is subject to American income tax. The tax rate is determined based on the annual profit of the investors and their status. Whether they are residents or non-residents is also significant. Additionally, capital gains from selling the property will be subject to capital gains tax in the United States. The tax rate is determined based on the length of the holding period of the property: short-term or long-term.
Two Tax Tracks in Israel
In Israel, there are two main tracks for taxing rental income from foreign properties:
Track 1
In this track, the tax paid is marginal tax, but as mentioned, it is paid on the gross income minus all expenses (net income) and includes a credit for foreign tax paid in the USA.
Track 2
In this track, the tax paid is 15%, but it is paid on the gross income from the property (without recognizing expenses, except for depreciation) and without a credit for foreign tax paid in the USA.
Choosing the most appropriate track depends on the personal circumstances of each investor and specific data of the property, such as its location, type, and expenses.
Importance of Consulting with Experts
American taxation is complex and diverse; therefore, it is recommended to consult with an accountant or tax advisor experienced in the field before purchasing a property in the United States. Professional advice will help you understand the implications of the investment, choose the optimal tax track, and avoid mistakes that could be costly.
An accounting firm like EMCA – Markovich Cohen CPA supports Israeli investors interested in investing in the USA and offers a wide range of solutions and attractive investment channels in both American and Israeli tax tracks.
In conclusion, purchasing an investment property in the United States can be a great, profitable, and attractive business opportunity compared to real estate prices in Israel. However, it is important to be aware of the various aspects involved in such an investment and seek professional advice before making the decision and along the way, to ensure that your investment yields significant and worthwhile returns and protects you and your money.
