US expats aren’t always planning to live abroad permanently, so it only makes sense that many will keep their US residence for when they return. But what are the expatriate tax implications of such a decision? David McKeegan, Greenback’s Co-Founder, takes a closer look at your options and the potential tax complications of each.
Hi everybody. My name is David McKeegan, I’m with Greenback Expat Tax Services and our question today is, “What are the tax consequences of keeping my US home while abroad?”
If you simply keep a residence in the United States that remains vacant there’s really no additional tax responsibility. Especially depending upon how you’re qualifying. If you’re using the Physical Presence test than it probably won’t have any impact at all.
If you’re using the Bona Fide Residence test you may need to state why you’re retaining the property if you’re living full-time in a foreign country with no intention of returning to the United States. It could have an impact on your bona fide residence status. (Note: this is because the IRS only considers you a bona fide resident if you are not planning to return to the US, and maintaining a residence there may be construed as an expectation to return.)
If you’re not leaving the property vacant; if you’re renting it out that’s when things can get a bit more complicated especially if you’re renting it for part of the time and using it for part of the time.
If for example, you rented out for more than fifteen days in the year and spent fourteen or fewer days in the home yourself, the IRS classifies this as a vacation home and a rental property.
Indirect expenses such as mortgage interest, real estate taxes, depreciation, etc., are pro-rated based on the number of days the property was rented out. Any sort of direct management expenses, management fees, advertising the property those kind of things will be 100 percent deductible against the rental income in that situation.
If you spend no time in the home in a given tax year it’s a straight rental property then 100 percent of the rental income must be reported and all expenses and repairs to the home can be deducted. That’s pretty straight forward.
If you spend more than fourteen days in the home and you rented out more than fifteen days in a year then it’s considered a vacation home and a secondary property. In this case you must report the rental income and then the deductible expenses are prorated based on the number of days that the property is rented at.
There is one more thing here; if you spend more than fifteen days in the home but rent it out less than fifteen days you don’t need to report any of the rental income you receive. So if you have a home that you rent out for one week a year then generally speaking you would not need to report that income.
If you have any questions please have a look at our website we have a much more detailed article on our website. We’ll include a link to that. Thank you very much and if you have any questions please let us know.
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