Whether you have a home in the US you’re thinking about renting out or considering an investment property abroad, understanding how a rental impacts your US expat tax return is key. Generally speaking, choosing to rent a property you own can lead to big reward, but there are certain tax implications you should be aware of before making this decision. Get the details here.
Income Earned from Renting
The money you receive as rent payment is actually considered ‘investment income’ by the IRS. If your renters pay for any services or repairs, you’ll also need to report that as income on your US expat tax return. In most cases, property owners request a security deposit when a renter moves in – if you return this when the individual moves out, you will not need to report this as income. However, if you keep the security deposit due to damaged property, this amount must be reported as income on your expat tax return. Learn more about rental income on the IRS website.
From the moment you list your home for rent, you can begin the depreciation calculation, which extends over a 27.5-year period. The depreciable amount is determined by the lesser of the fair market value of the home or the adjusted basis (your purchase price adjusted for any improvements).
Other Deductible Expenses
Fortunately, there are other rental property expenses that are considered to be deductible that can be written off on your expat tax return. These include:
- Mortgage insurance
- Homeowner association dues
- Money spent on travel to collect rent or make property repairs
Have property expenses that can be paid at the end of the year (even if they’re for the upcoming year)? Paying them prior to the end of the year means you’ll be able to deduct them from your 2017 US expat tax return, lowering your investment income for the year.
Claiming a Loss
You have the ability to claim up to a $25,000 loss on your US expat tax return if you’ve ‘actively participated’ in rental real estate. What exactly does that consist of? Well, you must own at least 10% of the property and actively make management decisions, like approving new tenants and property improvements or creating lease provisions. If you’re not an active participant, your loss can’t exceed the amount of income generated on your expatriate tax return.
The Importance of Good Recordkeeping
Keeping accurate records is so important when it comes to your US expat tax return, and especially so if you rent out your property and will need to report income and loss on your US Tax Return. If you have a property management company handling your rental, you’ll receive an organized statement at the end of the year, which makes it a bit easier to keep track of. Otherwise, if you are the individual managing your rental, the responsibility will fall on you to keep accurate and detailed information – so staying organized is the key to success! For more expat tax tips and ways to save, download a US expat tax guide today.
Need Help Reporting Rental Income on Your US Expat Tax Return?
Our team of expert accountants can guide you through the process of filing expat taxes and ensuring you take advantage of all tax savings available to you – get started with us today.