In the United States, taxes on income from a rental investment are to be paid to the city and the federal state. Once this step has been completed, these incomes must also be declared in France. The tax treaty between the two countries allows French investors to avoid double taxation through a tax credit mechanism obtained in France.
In the USA:
4 steps are needed to determine the overall amount of taxes to be paid in the United States:
a) Calculation of net property income.
All real expenses incurred in the management of the property are deductible from gross rents: management fees, insurance, current work, or travel expenses (air ticket), living expenses, etc.
Take the example of a French investor who bought a $ 100.000 house. If the gross annual rent represented $ 14.000 and the expenses were $ 4.000, the net real estate income to be reported will be only $ 10.000.
(b) Amortization of part of the purchase price
Regardless of the investor's status, part of the purchase price may be amortized on a straight-line basis over 27,5 years.
Take the example of a $ 100.000 rental investment that generates $ 10.000 of net income. The base value used to calculate depreciation is equal to the value of the rack, which is approximately 80% of the purchase value: 100.000 x 80% = $ 80.000 (rack value) 80.000 / 27,5 = $ 2.909 (the annual amortization) 10.000 - 2.909 = $ 7.091 (taxable income after depreciation)
c) "Personal exemption"
Each owner is granted a tax deduction in nominal value, for the year 2018, the sum corresponds to $ 4.150. This deduction applies to the net income to declare: 7.091 - 4.150 = $ 2.941 (taxable income)
(d) Application of the tax bracket
As in France, the US income tax brackets are progressive. In the majority of cases, investors are taxed in the 1er tranche at 10%. This corresponds to taxable income of less than $ 8.925 for a single person and $ 12.750 for a couple. Beyond this, the marginal slices are 15%, 25%, 28%, 33%, 35% and 39,6%.
The portion of 10% will be effective:$ 2.941 x 10% = $ 294
In our example of a good bought $ 100.000, enjoying a gross income of $ 14.000, the property tax will only be $ 294
When US income is reported in France, a tax credit equal to French tax is granted by the tax treaty (Article 24) to avoid double taxation. To calculate this tax credit, we must start from the gross foreign property income ($ 14.000) and redo the calculations by applying the French tax rules on property income (as if these revenues were from French sources). This restatement makes it possible to calculate an effective overall tax rate in France.
It should be noted that this mechanism only makes it possible to avoid double taxation and not to pay less taxes!
Taxation of real estate gains
In The Usa:
The taxation of real estate capital gain in the United States is calculated in two ways:
- Detention of property: less than one year ("short term capital gain").
The capital gain from the sale of real estate is included in the property income. The landlord then falls back into the classic calculation of the property tax.
- Detention of the property: more than one year ("long term capital gain").
Taxation of real estate capital gains is at two levels in the United States: federal and local. At the federal level, the rate is set according to the property tax rate. The low slice is not imposed; the median slice is imposed on 15% and the upper slice on 20%; Taxation more stable and more advantageous than French taxation.
At the local level, each state is free to set its own tax, which is added to the federal tax.
For example, Georgia applies 6% tax, California, 13%, while Florida or Tennessee does not apply any capital gains tax. It is therefore important to ensure this criterion before choosing the city in which you want to invest in real estate.
In France :
Real estate gains realized on the sale of real estate in the United States are subject to the same mechanism as real estate income, namely a double declaration (in accordance with Article 13 of the Franco-American tax treaty) while avoiding double taxation. The mechanism is simpler for capital gains since a tax credit equal to US tax is granted to the French in this situation. Finally, it is important to note that capital gains taxation may be temporarily exempt if the funds are reinvested in another real estate investment on US soil.