With the June expat tax deadline less than two weeks away, if you’re not sure what your filing obligations are, you’ll want to determine your expatriate tax preparation requirements right away. While you may not have time to file by the June deadline, you will need to request an extension until the October deadline by June 15th. Below, we’ll cover four common questions that come up for US expats so you can be prepared to file your expat taxes.
If I renounce my US citizenship, will I be free from US tax filing requirements?
Eventually, yes. However, renouncing US citizenship doesn’t erase the US expat taxes you already owe, so you should ensure you’re up to date on your expatriate tax preparation before you begin the renunciation process. Also, you may be imposed an ‘exit tax’ on top of your standard US expat taxes if you’re a ‘covered expatriate’ – in which you must meet the following three conditions:
- Your average annual net income tax for the 5 years prior to your date of expatriation is more than $162,000 (this amount is adjusted for inflation each year).
- Your net worth is more than $2 million or more on the date of expatriation.
- You fail to certify on Form 8854 that you’re fully compliant with your US tax obligations for the 5 years preceding the date of your expatriation.
If the above conditions do not apply, you won’t be subject to additional US taxes once you officially renounce your citizenship.
Will I need to file state or local taxes?
This will depend entirely on where your property is located. Certain states have no income tax, while others do. Also, some states require a tax or fees to be paid on certain business structures established within the state if properties are held in an LLC or similar type of business. It’s a good idea to consult with a tax professional for expatriate tax preparation advice before purchasing property so you’ll understand the tax implications before making an investment. You can read more about states that have filing requirements for expats in this article.
What are my tax filing requirements as a non-resident property investor in the US?
Ultimately, your small business tax return filing requirements hinge on the type of entity you choose to make the investment and the number of investors.
- An individual or single-member LLC with direct ownership would file Form 1040-NR.
- A foreign corporation would file Form 1120-F.
- A multiple-member LLC (foreign or domestic) would file Form 1065 and each foreign partner would receive a K-1 and need to file Form 1040-NR individually; domestic partners would include this on their Form 1040.
- A domestic corporation would file Form 1120 within 3.5 months of its fiscal year end.
You can more expatriate tax preparation tips, important deadlines and more by downloading a US expat tax guide.
How does buying or selling real estate change my US expat taxes?
Buying or selling real estate can have a big impact on your US expatriate tax return, as any gains on the sale of real estate are subject to taxation. Note, however, if you’ve lived in the home as your primary residence, you’ll be able to exclude up to $250,000 (or $500,000 for those married filing jointly).
Even if your real estate income wasn’t abroad, it isn’t considered foreign earned income, so can’t be excluded by the Foreign Earned Income Exclusion. You should also consider the effect of currency fluctuations, as it can affect how much capital was actually earned by purchasing and selling real estate overseas.
Gains from real estate transactions can move you into a different tax bracket and increase your US expat tax obligations, so you’ll want to talk with a tax professional and carefully consider your options before investing in real estate abroad. You can learn more about buying and selling abroad here.
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