- You own U.S. rental property and live outside the U.S.
- Your property manager withholds 30% of gross rent
- Your expenses and depreciation are close to your rental income
The situation
“The manager kept a third of every rent check. Now nothing is withheld and I file once a year.”
Chen Jie bought two condos in Houston in 2021. His property manager collected $34,800 in rent in 2024 and, because Chen had no U.S. taxpayer number, withheld 30% of the gross rent, $10,440, before paying him.
He still paid property tax, HOA fees, insurance and management fees out of what was left, so the 30% withholding took more than the properties earned.
Application path
- W-7 reason
- Reason b — nonresident alien filing a U.S. federal tax return
- Filed with
- Form 1040-NR for tax year 2024 with a Section 871(d) election statement
The 871(d) election treats rental income as business income, so it is taxed on the net amount after expenses and depreciation. The election is made on a timely 1040-NR, which requires the ITIN.
Documents
- Valid Chinese passport
- Purchase closing statements for both condos
- 2024 owner statements from the property manager
- Property tax, HOA and insurance bills
- Form 1042-S showing the withholding
- Form W-7 with Reason b
- Form 1040-NR with Schedule E and an 871(d) election statement
- Depreciation schedule for both units
- Form W-8ECI for the property manager, sent after the ITIN arrived
Timeline
- Feb 2025, day 1Review of owner statements and 1042-S.
- Day 4Video interview in the evening, Shanghai time.
- Day 7W-7 and 1040-NR mailed.
- Week 11ITIN issued.
- Week 12W-8ECI delivered to the property manager; withholding stopped.
- Month 6Refund received.
Issues we solved
Chen had not filed for 2022 or 2023.
A nonresident must file within 16 months of the due date to deduct expenses against effectively connected income. Those years were past that window, so we filed them only to report the withholding and focused the election on 2024 onward.
The manager’s owner statements did not separate repairs from improvements.
We reviewed each invoice. A $4,200 water-heater replacement was capitalized and depreciated instead of deducted.
The numbers
| Gross rent | $34,800 |
| Property tax, HOA, insurance | −$13,900 |
| Management fees and repairs | −$4,284 |
| Depreciation | −$10,909 |
| Net rental income | $5,707 |
| Tax at graduated rates | $571 |
| Withheld at 30% of gross | $10,440 |
| Refund | $9,869 |
Nonresidents do not get a standard deduction, so the first $11,600 is taxed at 10%.
Outcome
The refund arrived six months after filing. Since the W-8ECI went to the manager, rent has been paid in full with no withholding.
Chen files a 1040-NR each June and makes estimated payments if the net income grows.
Questions people in this situation ask
Yes. Form W-8ECI requires a U.S. taxpayer identification number, and for an individual that is an ITIN.
If you need an ITIN before filing a return because the lender reports interest on Form 1098, Exception 3 applies, with documentation of the mortgage loan.
Yes. Once made it applies to all later years unless revoked with IRS permission.
IRS sources
- Instructions for Form W-7 (Rev. December 2024)
- Publication 519 — U.S. Tax Guide for Aliens
- Publication 515 — Withholding of Tax on Nonresident Aliens
This is a representative case. Names and personal details are illustrative; the IRS rules, forms and calculations reflect tax year 2024. It is general information, not tax advice for your situation.