Tax on property income in US Virgin Is.
Taxation Researcher | March 21, 2023
Tax Rate on Rental Income
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The US Internal Revenue Code of 1986, as amended, applies in the US Virgin
Islands as the US Virgin Islands tax code through the use of a substitution scheme known as the "mirror" system.
Nonresident individuals are liable to pay tax on their income sourced in the US Virgin Islands. Nonresident married couples are taxed separately. Furthermore, nonresident foreigners cannot file as head of the household.
Nonresident individuals not electing to treat the rental income as effectively connected income are taxed on their gross income. Essentially the tax rate for individuals is the same as a resident of a state with no income tax would have.
Federal Income Tax Brackets (Single)
|TAXABLE INCOME, €||TAX RATE|
|Up to $11,000||10%|
|$11,001 – $44,725||12%|
|$44,726 – $95,375||22%|
|$95,376 – $182,100||24%|
|$182,101 – $231,250||32%|
|$231,251 – $578,125||35%|
|Source: Global Property Guide|
GROSS RECEIPTS TAX
Every individual doing business in the islands are liable to pay the 4% gross receipts tax in addition to the income tax. The first US$5,000 monthly income is exempted from gross receipts tax if annual gross receipts are less than US$150,000.
Capital gains on the sale of the rental property will not be subject to the gross receipts tax.
CAPITAL GAINS TAXIncome from the sale of real property is always considered "effectively connected income". Capital gains on real property held for more than one year are generally taxed at a maximum rate of 15%.
Capital gains received by taxpayers within the 10% and 15% tax brackets are taxed at a flat rate of 10% as of 01 January 2011. For all other taxpayers, capital gains are taxed at a flat rate of 20%.
Taxable capital gains are calculated by deducting the "adjusted basis of the property" from the "amount realized from selling the property". The amount realized from selling the property is computed by deducting selling expenses from the gross selling price. The adjusted basis of the property is the original cost of the property plus expenses deemed to have increased its value (i.e. capital improvements), less items which have notionally decreased its value (i.e. depreciation).
If the property seller is a non-resident foreigner, 10% of the selling price is withheld by the buyer as tax. The tax withheld amount is later credited as advance payment for capital gains tax.
The US Virgin Islands currently imposes a real property tax at 1.25% of the property´s assessed value. The property´s assessed value is 60% of its actual value or fair market value. Thus, the effective tax rate is 0.0075% of the property´s fair market value.