# How do taxes work? **US Residents:** You are required to disclose any income you receive from Lofty to the IRS. Taxes are filed using a K1 form that we fill out for you and send to the IRS. You will also receive a filled out copy. Rental income is taxed as normal income and standard capital gains taxes apply once you sell your tokens for a gain. You will receive a separate K1 form per property you invest in. The K1 forms are pre-filled and you will only have to fill in a few fields in your Form-1040, which is your personal income tax filing. You will also be responsible for filing state taxes in the states that properties are located in. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don't have state income taxes, so in these states, you do not have to worry about filing state income tax. If your rental income does not exceed $1,000 USD for the tax year from a property investment in a different state, some CPAs would recommend you not file taxes in those foreign states. However, you should always consult your own accountant and make decisions based on your own risk tolerance. **Non-US Residents:** If you are located outside the US, you will be subjected to withholding taxes when you try to sell your tokens for a gain or withdraw your rental income. Some countries have Tax treaties with the USA, so if your country has one and you don’t want to pay withholding taxes, you will need to complete a Form W-8BEN, for individuals, and Form W-8BEN-E, if you invested as a business entity, and send it to , as separate attachments in the email, before you withdraw rental income or decide to sell your tokens. This process is only available for foreign entities or individuals who have a SSN or ITIN within the USA. If you do not possess one of these numbers, you will have to be subjected to foreign withholding taxes. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://lofty-2.gitbook.io/faqs/faq/how-do-taxes-work.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.