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January 11, 2020

When you Own Rental Property Abroad- How to Treat on Your US tax Return

When you own rental property outside of the USA  (which is required to be reported on your US income tax return) you will need to know the following to properly report it on your US taxes:

1. The lifetime its value  is depreciated most often is different from the rate in the USA.
2.  It is reported on Form 1040 schedule E, if it is not owned through a foreign partnership, corporation or foreign trust.
3. If the property is owned through a foreign corporation, trust or partnership special forms must be filed with your US personal tax return such as form 5471, 8865, 3520, etc.  Failure to file one of these forms if  required can result in a penalty of $10,000 or more.
4. The income and expenses of the rental must be reported for taxes in the same manner as a US rental property.
5. You will get a tax credit to offset your US tax on the rental income for income taxes paid the country in which the rental is located.
6. The US income tax rules for the rental apply to the property even though it as a VRBO, ARBNB, or other vacation rental.
7.  You cannot do a 1031 exchange from your rental into a US rental property or exchange a US rental property into a foreign rental property.
8. If you maintain a bank account abroad to collect rent and pay expenses you may be obligated to file Form 114 each year to report that (those) account(s). Failure to report can result in substantial penalties.

If you have questions or need further information EMAIL US FOR ANSWERS  We are US CPAs and Attorney with over 20 years experience in international taxation.

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