Question

Hans is a citizen and resident of argentina. hans does not hold a green card, and argentina does not have an income tax treaty with the united states. at the start of year 1, hans paid $2.5 million for an apartment building located in the suburbs of washington,


d.c. hans does not actively manage the building, but rather leases it to an unrelated property management company that subleases the building to the tenants. during year 1, hans had rental income of $300,000 and operating expenses (depreciation, interest, insurance, etc.) of $220,000. on the advice of his accountant, hans made an irc § 871(d) election in year 1.

Answer 1

Answer:

Hans will be taxed $24,000 for his rental income and $150,000 for the capital gains realized on the sale of the building.

Explanation:

In the US, aliens must pay taxes on effectively connected income (ECI):

Alien's income or capital gains are all taxed at an effective 30% rate, so his earnings during year 1 will result in $300,000 - $220,000 = $80,000 x 30% = $24,000 taxes due, and the sale of the building will result in $2,900,000 - $2,400,000 = $500,000 x 30% = $150,000 in taxes.