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I an an Australian citizen, and I am interested in purchasing mortgage notes secured by California real estate. The payments are tendered monthly. What are the tax ramifications in the US? Is there a higher tax rate in Australia on money earned out of the country?

  • I would recommend a lot of due diligence on this kind of investment. Did you know that when a borrower defaults on a first mortgage in California that only the home is collateral for the loan, and the borrowers' earnings or other assets need not be used to repay the loan? And there is all manner of weirdness afoot in this particular market right now, as well. There's at least one city thinking that they can acquire mortgages through condemnation or 'eminent domain' -- not the physical property, but the loans, possibly because the banks are not cooperating in loan modifications or other rsns – Paul Aug 17 '13 at 8:11
  • Australian tax law says that all sources of income are taxable for Australian residents. Therefore, it is your residency status, not your citizenry status, that is relevant. It is possible for your combined income from all sources to cause you to pay higher rates of tax on the portion that is above the threshold of the lower (tax rate) bracket. You may also be subject to US taxes but there is a tax treaty between the US and Australia that means you shouldn't be taxed twice. You may need to claim back such duplicated taxes. – GreaseMonkey Oct 12 '13 at 0:41
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US-Australian tax treaty limits the tax the US can levy on interest payments to Australian residents at 10%. However, that is the "worst" situation. There are several exempted situations which your specific example may fall into where you wouldn't need to deal with the US taxes at all. I suggest contacting a tax accountant proficient in that treaty and the Australian tax law. You will still be obviously paying taxes in Australia.

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