TaxTips: Rental Income and Taxation | What You Need to Know?

Any U.S. citizen or resident alien gets taxed on their worldwide income, regardless of whether it was earned domestically or abroad. If you own a rental property in a foreign country, you must fulfill a few additional requirements while filing your U.S. tax return. 

Let's explore what you need to know about the taxation of real estate rental income, especially foreign real estate rental revenue. 

 

Key Points 

 

For a thorough understanding of the tax consequences of your rental property under U.S. law, you must understand the following taxation factors. 

1. The property's ownership – how do you acquire it? How you hold title to the real estate property may affect the tax calculation of your rental income and capital gains tax at the time of sale. If you acquired the property through a company or a trust, you must file additional IRS papers. If you inherit property, you may be required to complete form 3520. Sure Financial and Tax Services LLC can advise you on this matter. 

2. Nature of Rental Income - What kind of income does it represent? Your rental income from real property may be taxed or exempt. Your rental loss may or may not be deductible. All of these factors depend on the classification of rental real estate and rental income category. Consult with us for assistance with this. You must distinguish between revenue from personal property, income from investment property, and income from commercial real estate. 

3. Foreign currency conversion rate: When the real estate is located outside the United States, you must examine and account for whether or not the rental activity qualifies as a Qualified Business Unit for currency conversion purposes. This determination resulted in numerous taxing factors. Sure Financials and Tax Services, LLC can provide assistance with this. 

4. Depreciation: In order to determine rental income, you must deduct depreciation on the building in addition to other expenses. Depreciation calculations vary from country to country. Foreign property is depreciated differently when it comes to United States taxes. Cost of acquisition, cost of improvement, and authorized and permissible depreciation play a significant role in determining depreciation. The depreciation claimed as a tax deduction today may be taxable income at the time of real estate sale. 

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6. A double taxation treaty with a foreign government stipulates that every U.S. citizen or resident alien gets taxed on their worldwide income, regardless of where it was earned. Consult Publication 901 for information on double taxation treaties. Form 8833, Treaty-Based Return Position Disclosure, may be necessary in certain circumstances. Regarding Section... This is a complex issue that requires the assistance of a tax expert. 

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8. Credit for foreign taxes, if any: Every nation has its unique tax rules and computation method. If your rental property is located in a foreign country, you may be required to pay taxes on the rental real estate revenue to that country. Since U.S. citizens and permanent residents are taxed on their worldwide income, foreign rental income is also taxed in the United States. However, the good news is that you can claim the foreign tax you paid as a deduction or credit, with the credit being more advantageous. For more information, consult Form 1116 - About Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) or contact Sure Financials and Tax Services LLC. 

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10. Expenses Related to Rental Activity: During your rental period, you may have incurred expenses, paid tax and interest, and incurred other costs. For permitted expenses, consult Schedule E - About Schedule E (Form 1040), Supplemental Income and Loss. 

Regardless of your actions, you must keep records to verify your claim. Providing supporting paperwork is required if you are claiming cost-of-improvement depreciation. 

  

At the time of the sale of the rental property, you are required to retain records of the purchase price, any upgrades, depreciation claimed in the past, and rental losses that were not permitted in the past. 

Refer https://surefintaxsvs.blogspot.com/2022/05/irs-record-keeping-requirement.html for IRS record keeping requirement. 

Tax Tips: Income Tax Credit for Qualified Plug-in Electric Driven Motors

Qualified Plug in Electric Drive Motor Vehicles, including Passenger Cars and Light Trucks, are eligible for a credit under Internal Revenue Code Section 30D.   

For qualifying plug-in electric drive motor vehicles that you put into service during your tax year, use Form 8936 to calculate your credit.   

From $0 to $7,500, this non-refundable credit is available. 

• The eligibility for the electric drive motor credit tax credit is determined by Internal Revenue Code 30D (a). 
• Passenger cars, light trucks, and two-wheeled vehicles can all use this credit. 
• For a manufacturer who sold more than 200,000 qualifying four-wheeled electric plug-in vehicles, the tax credit phases out. To find out which manufacturer is being phased out, visit https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit.
• Form 8936, entitled "Qualified Plug-in Electric Drive Motor Vehicle Credit," must be completed by the taxpayer. The 01/2022 revision of this form. 
• The brand-new four-wheel vehicle ought should 
• primarily driven by an electric motor that gets power from a battery with a minimum capacity of 4 kilowatt hours and the ability to be replenished by an external power source, and 
• a vehicle with a gross weight under 14,000 pounds. 
• manufactured with public streets, roads, and highways in mind. 
• The brand-new two-wheel vehicle ought should 
• capable of accelerating to a speed of 45 mph or more, 
• primarily driven by an electric motor that receives power from a battery with a minimum capacity of 2.5 kilowatt hours and the ability to be recharged by an external power source, and 
• a vehicle with a gross weight under 14,000 pounds. 
• The taxpayer 
• must be the vehicle's owner. Only the lessor, not the lessee, is eligible for the credit if the car is leased. 
• The car must be put into use during the tax year. 
• Must the first owner of the vehicle 
• purchased the automobile not for resale, but for personal use or to lease to others. 
• must primarily utilize the car in American soil.