U.S. Taxation of Nonresident Aliens. The taxation of U.S. rental income of a nonresident depends on whether the foreign owner of the 2 property engaged in a "U.S. trade or business”. The United States taxes any income received by a foreign investor efficiently connected with their U.S. trade or business on a net basis. While there is no formal definition of "trade or business," previous I.R.S. rulings demonstrate that it is met by "considerable, continuous, and regular" economic activities within the United States. Rental income generated by U.S. property fails to rise to this classification for foreign investors. Generally, this form of income is typically deemed passive income and is subject to a flat 30 percent gross income. However, investors can make an election under I.R.C. § 871(d) to treat rental income as efficiently connected income. The election allows the Turkish investor to be taxed at graduated rates and take business deductions before paying the tax. Expenses including mortgage interests, real property taxes, maintenance, repairs, and deprecation may be deducted in determining net taxable income. The Turkey Tax Agreement does not contain a specific provision allowing for the net election like similar tax treaty agreements. Despite the absence of this disclosure, Turkish investors mustn't forget this option is available to them. In making this election, the investor agrees to prepare a U.S. tax return to report rental income earned. The taxpayer will need to apply for an Individual Taxpayer Identification Number (ITIN)using Form W-7 and submit the document with the tax return. In addition, the investor must complete and submit Form W-8ECI to the withholding agent. Although the net election requires additional work, it is more advantageous to the investor as it allows the deduction of necessary expenses incurred while operating the property and for the remainder to be taxed at likely lower ordinary income tax rates.