H1B visa holders earn considerably high income annually. Like everyone else, they are encouraged to grow their wealth by investing. This brings us to the question: can H1B visa holders buy a rental property?
H1B Visa holders can buy a rental property. Since they are only purchasing a rental property as a long-term investment or for accommodation, they are free and eligible to buy it.
However, if you’re going to be buying rental property while on an H1B visa, there are some vital pieces of information you would need to know. An example is that for your rental to qualify for subsidized taxation, it has to derive 80% of its income as a residential property. In the rest of this article, we will provide you with interesting and beneficial information about this topic; so let’s begin!
Does it Make Sense to Buy a Rental Property For H1B Visa Holders?
In the US, the economic situation of the country is the determining factor as it relates to buying rental property. If the financial situation is favorable, then it is a wise decision to buy a rental property. When we say favorable, we speak in terms of job creation, currency circulation, and economic growth. Rental properties in the US could experience drops in prices due to economic conditions; hence, the real estate market should be thoroughly studied before venturing into such business.
On the other hand, bad economic conditions might lead to large-scale job loss, currency devaluation, and other negative meltdown issues. These conditions are the main reasons for the fall in the price of rental properties in the US. We actually encourage doing real estate research before embarking on this strenuous but exciting investment journey.
As an H1B visa holder, you will be advised to seek consultative advice when making such decisions. Meet with other experts in the field and ensure rental investments aren’t your principal investment. Understanding these points will help you in making potentially beneficial choices of investments while working/retiring.
Do H1B Visa Holders Need to Set Up LLC For Rental Income?
Owning rental property while on an H1B visa is pretty much worthwhile since you will be earning more money besides your average income from work. However, monitoring your rental property while working can be a little bit of a hassle because you will have to watch the integrity of your building’s structure and other essential things.
According to Myra, you can set up a Limited Liability Company (LLC) because taking control of your business affairs while working would probably put a lot of stress on you, so you should improvise. Improvising in this context might refer to employing the services of an LLC manager. The LLC manager will be in charge of your building renovation, utility maintenance, and other vital needs your business expects of you. All you are in charge of will include payment for new rental homes, building/interior renovation, the refund of rent (if necessary), and other requirements that may arise.
However, it is also crucial that you adhere to the strict instructions guiding your H1B visa and employment agreement. When opening an LLC for your rental property, you are strictly advised not to work there – since you’re in the US thanks to the H1B visa your employer made available to you based on your contract.
In this context, you are permitted to own the LLC Company, not work for it, and you have to ensure that you don’t violate the USCIS regulations while doing so. Understanding these regulations will guide you on which businesses you can personally manage or which one you need a property manager to help you manage.
Can H1B Visa Holders Legally Do Airbnb While On H1B Visa?
Airbnb is a San Francisco based online vacation rental marketplace offering lodging, tourism, and homestay booking services to its clients. Airbnb works with homeowners or other real estate investors to make their services top-notch. In simpler words, they do not own any of the real estate properties/listings they provide to their clients; they, however, perform brokerage activities by receiving commissions based on the number of bookings.
An H1B visa holder can do Airbnb because he or she owns their property legally, and there aren’t any regulations or laws restricting them from doing so. Since setting up your home for Airbnb can be described as a passive income because you aren’t getting involved in a significant way, it is perfectly legal. It is advisable to consult a certified immigration attorney to guide you each step of the way.
It is also vital that you provide necessary tax details when applying for a green card. The country doesn’t need too much of a burden and would want to certify if you are capable of taking care of most of your personal needs before approving the green card. But yes! Indeed, yes, you can perform Airbnb activities on your property.
For you to qualify for Airbnb, you’d need to provide your social security number. Once they validate your social security number, they approve your property and accept a booking for it. After the booking fee has been paid, you get your pay as well. However, if your payment from the rent doesn’t exceed a specified amount of $600, you won’t receive a tax Form 1099-MISC – you should keep in mind that taxes are essential.
What Are the Rental Income Tax Implications For H1B Visa Holders?
For every job activity you partake in while on an H1B visa, you get charged. You might not have noticed this because your employer generally takes care of your tax filing and other necessary protocols. However, you must pay tax when operating a rental property or owning an LLC. Doing so would help the government evaluate your financial stability – it is also an added advantage for people who want to get a green card in the nearest future.
Filing for taxes while on an H1B visa in the US is a mandatory process. It involves taxation on every amount you earn while in the US, similar to US citizens. When filing for taxes, you are to file a US tax return (Form 1040NR), but you cannot get the same tax deductions a US citizen will get. However, becoming a resident will provide you with access to the necessary deductions, but you will be charged on your earnings all over the world.
Here are some taxes you’d pay as an H1B visa holder.
Social Security Tax
While working in the US, you will undoubtedly be required to pay for social security tax. The social security tax covers your pension after your retirement, irrespective of your location. One half of the Social Security Tax is paid by the H1B visa holder’s employer, while your US employer pays the other half. However, when it’s your turn to pay, you will be expected to pay 6.2% of your annual salary.
Medicare
Medicare is vital for all individuals who stay in the US irrespective of their visa type or status. It covers all your healthcare needs after your retirement, and it is paid alongside your Social Security Tax. When paying for Medicare Tax, you and your employers would be required to contribute 1.45% of your annual salary.
State Income Tax
The State income tax is paid according to the guideline and tax stipulation of the state where you are living and working. So essentially, the tax rate payable varies from state to state.
Federal Income Tax
As mentioned earlier, you will be subjected to a non-residential income tax system since you are a foreign employee. Your taxable income should fall within 25% -28% based on your salary earnings from your employing company.
Rental income tax is incurred whenever your property is rented and taxed annually or per rental. Your rental is taxed depending on the income it produces – if your financial status is within the 22% marginal tax bracket and you have up to $5,000 as rental income, then the government would require you to pay $1,100.
It would be best if you also understand that you don’t have to pay taxes on all of your rental income. You can make deductions due to expenses on properties. Some of these deductions include property taxes, insurance costs, mortgage interests, HOA dues or condo fees, payments to a property manager, cleaning/maintenance costs, and other associated costs.
Summarily, buying a rental property as an H1B visa holder is an excellent form of investment, depending on the state of the country’s economy. Understanding the laws associated with buying rental property and filing taxes for your rental property is essential since most H1B visa holders aim to reside permanently in the US after years of service.
However, you should note the strict rule governing creating and working in your LLC company while on H1B – it is not advisable. Yet, if you decide to sell your property after purchasing it, your profit from the sale is taxable only up to a certain point. Beyond the specified threshold, your profit is treated as capital gains.
Whatever your decision, it would be very wise for you to invest in real estate. Since the government encourages and supports it by reducing the taxes incurred by foreign investments and businesses. So! If you’re an H1B visa holder, you are free to buy a rental property in the US.
